UPDATE 2-Rusal asks LME to postpone proposed warehouse overhaul
* Says LME proposal will further distort aluminium market
* Suggests the LME expand number of warehouses in network
* Asks LME to reveal actual ownership of backlogged metal
By Polina Devitt and Maytaal Angel
MOSCOW/LONDON, Sept 25 (Reuters) - Russia's United Company Rusal, the world's biggest aluminium producer, asked the London Metal Exchange to postpone a proposed overhaul of warehouse rules, saying it could further distort the aluminium market.
The LME, the world's biggest marketplace for industrial metals trading, has proposed rules that would force warehouses to release more stocks than they take in.
Rusal Chief Executive Oleg Deripaska used strong language on Wednesday in criticising the proposal by the new owners of the LME, Hong Kong Exchanges and Clearing (HKEx).
"The intent of the HKEx to accelerate the transfer into the market of an additional 2 million tonnes of aluminium, accumulated and stored since the financial crisis, is an unprecedented intervention and one that Rusal strongly objects to," he said in a statement.
"Rusal is concerned that a set of measures the HKEx, as the owner of LME, has proposed risk creating further aluminium market distortions. The company believes that these measures will lead to a less transparent marketplace."
The LME's proposal is a response to complaints by metals consumers that backlogs in deliveries from LME warehouses have driven spot aluminium surcharges, or premiums, to record highs.
U.S. regulators also are enquiring whether the big banks and trade houses that own warehouses have artificially inflated those premiums.
Meanwhile, benchmark aluminium prices on the LME have shed 13 percent so far this year due to a huge market surplus and are down 47 percent from a peak of $3,380 a tonne in 2008.
News of the proposals has already led to a decline in aluminium premiums. A significant fall would cut into the already thin profit margins of aluminium producers such as Rusal.
Rusal appealed to the LME to consider alternatives to the current plan, such as expanding the global network of warehouses and encouraging new, independent warehouse operators to enter the business.
Analyst Nic Brown at Natixis in London said HKEx wants to get approval from the Chinese government to open LME warehouses in China, which is seen as unlikely if there are huge backlogs in the system.
"It's a market that HKEx knows it needs to capture in order for the purchase of the LME to make sense, so it will go ahead with these rules to get into the Chinese market," he said.
"And if it's detrimental to Rusal, that's unfortunate, and for HKEx that damage is worth incurring in order to get warehouse access in mainland China."
Rusal asked for a postponement of the rule changes pending an industry consultation that would reveal actual ownership of metal in warehouse queues.
The company repeated its previous demands that the LME increase transparency by releasing more detailed data on long and short positions as well as about who is holding inventories.
Rusal also suggested that the LME introduce a contract that would allow the hedging of regional aluminium premiums, which together with the existing contracts on price would enable market participants to manage their all-in exposures.
Premiums are paid over the LME cash price to cover physical delivery costs. They also reflect changes in supply-demand dynamics, such as increased metal availability as a result of reduced warehouse backlogs.
The LME board is expected to make a final decision on the warehousing proposal next month. If approved, the new rules would come into force on April 1 next year.
Consumers of aluminium, such as beverage can makers, are also unhappy with the LME plan and have said it falls short of solving the problem.
"It's (the LME proposal) a very complicated way of dealing with the issue, and I think both the producers and consumers are concerned that it doesn't tackle the heart of the issue," Barclays analyst Gayle Berry said.
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