22 OCTOBER 2013Financial Times
Alcoa criticises LME on metal warehousing issues
Edited by : AL CIRCLE
2 min read
One of the world’s largest aluminium producers has attacked the London Metal Exchange as “short-sighted and misguided” and called on regulators to intervene in a row about metals warehousing.
In a letter sent to the UK Financial Conduct Authority and the US Commodity Futures Trading Commission on Friday and seen by the Financial Times, Alcoa accused the LME of “exceeding the proper role of an exchange” in its response to the controversy.
The escalation of the dispute over warehousing threatens the primacy of the 136-year-old LME as the home of global benchmark prices of metals from aluminium to zinc. It comes less than a year after it was bought by Hong Kong Exchanges & Clearing for £1.4bn.
The argument centres on long queues to take delivery of aluminium from LME-registered warehouses, many of which are owned by banks, which have triggered a series of complaints by metal users, criticism by senators and investigations by US regulators.
In response, the LME has proposed a change of rules that would eventually bring down the length of queues.
But Alcoa criticised the LME’s apparent focus on bringing down “premiums” – the cost of physical aluminium over and above the LME futures price – which have soared to record highs thanks in part to the queues.
Klaus Kleinfeld, Alcoa’s chief executive, said the move would “set a dangerous precedent of market intervention by an exchange”.
The rise in premiums has been a lifeline for aluminium producers amid sliding futures prices. However, Mr Kleinfeld rejected the suggestion that Alcoa’s intervention was based on its own financial interest, noting that the company is also a user of aluminium and therefore “we sit on both sides”.
He also criticised the way the LME had approached the issue: “Not only was it not robust, it was not transparent – and also not fair.”
In its letter to the regulators, Alcoa argued that the LME had acted in its own interests rather than the best interests of the market. “Alcoa believes that the fairness and proper functioning of the aluminium market is seriously jeopardised by the proposal,” the company said.
The LME’s board is due to meet on Friday to discuss the proposal; however, any change in rules will also need to be approved by the FCA.
In a letter sent to the UK Financial Conduct Authority and the US Commodity Futures Trading Commission on Friday and seen by the Financial Times, Alcoa accused the LME of “exceeding the proper role of an exchange” in its response to the controversy.
The escalation of the dispute over warehousing threatens the primacy of the 136-year-old LME as the home of global benchmark prices of metals from aluminium to zinc. It comes less than a year after it was bought by Hong Kong Exchanges & Clearing for £1.4bn.
The argument centres on long queues to take delivery of aluminium from LME-registered warehouses, many of which are owned by banks, which have triggered a series of complaints by metal users, criticism by senators and investigations by US regulators.
In response, the LME has proposed a change of rules that would eventually bring down the length of queues.
But Alcoa criticised the LME’s apparent focus on bringing down “premiums” – the cost of physical aluminium over and above the LME futures price – which have soared to record highs thanks in part to the queues.
Klaus Kleinfeld, Alcoa’s chief executive, said the move would “set a dangerous precedent of market intervention by an exchange”.
The rise in premiums has been a lifeline for aluminium producers amid sliding futures prices. However, Mr Kleinfeld rejected the suggestion that Alcoa’s intervention was based on its own financial interest, noting that the company is also a user of aluminium and therefore “we sit on both sides”.
He also criticised the way the LME had approached the issue: “Not only was it not robust, it was not transparent – and also not fair.”
In its letter to the regulators, Alcoa argued that the LME had acted in its own interests rather than the best interests of the market. “Alcoa believes that the fairness and proper functioning of the aluminium market is seriously jeopardised by the proposal,” the company said.
The LME’s board is due to meet on Friday to discuss the proposal; however, any change in rules will also need to be approved by the FCA.
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