LONDON/TORONTO Oct 21 Alcoa Inc, the
world's second-largest aluminium producer, has complained to
British and U.S. market regulators about a proposal by the
London Metal Exchange to overhaul the LME's warehousing policy.
The LME must suspend its plan to change warehousing or risk
damaging the entire aluminium market, Alcoa said in a letter
sent on Friday to the UK's Financial Conduct Authority and the
U.S. Commodity Futures Trading Commission.
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 if deliveries are
delayed by three months or more.
The metals warehousing business has stoked controversy as
warehouse firms have made money by building up stocks and
allowing queues to grow for clients seeking to withdraw
material, all the time charging rent for storage.
End-users say those steps have caused long wait times that
have distorted supplies and inflated premiums, or the difference
between LME on-exchange prices and the actual price of physical
delivery of metal.
But in its letter to regulators, Alcoa said it was
fundamentally wrong for an exchange, which should act as a
neutral platform, to alter the rules of the market with the
express aim of moving prices, in this case regional premiums.
Producers worry that premiums will fall as a result of the
rule changes, hurting profits, even as LME prices are close to
or below many smelters' cost of production.
Without higher premiums to offset low underlying prices,
producers are likely to shut more capacity to remove the excess
in the global market, analysts say.
Alcoa said the LME had not acted fairly and transparently in
putting together the proposal and that it had acted outside its
proper role as an exchange.
"The LME does not appear to have given adequate
consideration to the harmful effects which might arise from the
proposal," it said in the letter, seen by Reuters. "These are
likely to include reduced transparency, increased volatility and
the possibility of market distortions."
Alcoa also said the LME had apparently not put in place
safeguards to ensure its own interests do not conflict with
maintaining a set of rules that are fair to all users.
It urged the LME to launch a new consultation that offered
all market participants an equal right to be heard, safeguarded
against conflicts of interest and considered a range of
U.S.-based Alcoa and larger aluminium producer Rusal
of Russia have already urged the LME to delay its
decision and asked the exchange to release more-detailed data on
long and short positions as well as inventories.
Earlier this month, Alcoa Chief Executive Klaus Kleinfeld
lashed out at the LME's proposal to solve a years-long crisis
that has damaged the exchange's reputation and cost industrial
users billions of dollars in additional expenses.