* Repeat of consultation would be detrimental to market -
* LME 'could suffer reputational damage' if reforms don't go
* LME consulted 'widely and intensively'
By Alexander Winning
LONDON, Feb 27 The London Metal Exchange voiced
"serious concerns" over its ability to maintain an orderly
base-metal market if forced to repeat a consultation to reform
its global warehouse network, as Russian aluminium giant Rusal
seeks a judicial review.
United Company Rusal, the world's largest producer
of the metal, is seeking court permission for a judicial review
in hopes of quashing the LME moves it says may undermine the
price at which the company sells its products.
Rusal argues that the LME actions will harm its economic
interests and that there were flaws in the consultation and
inquiry process adopted by the exchange.
"The LME has serious concerns regarding the consequences for
the market if it is required to re-consult," British lawyer
Michael Beloff, QC, said on Thursday in the LME's skeleton
"Delay to the implementation of the proposal would prevent
the LME from taking action necessary to maintain an orderly
market and would be detrimental to the market as a whole."
The hearing marks the first legal hurdle confronting the LME
over the reforms, which are due to take effect in April.
The LME, owned by Hong Kong Exchanges and Clearing
, oversees warehouses around the world where companies
that buy metals such as aluminium or copper on its futures
market can take delivery of quality-assured supplies if needed.
Big banks and traders that own warehouses and charge rent
have profited from letting long queues build up for buyers to
withdraw metal. Some also keep huge stocks of aluminium tied up,
unavailable to manufacturers, in long-term financing deals.
The exchange is also facing lawsuits filed by U.S.
manufacturers because of the delays.
The new regulations aim to cut queues and raise loading-out
rates at warehouses with log-jams while fending off criticism
from end-users such as Novelis, which supplies metal to Coca
Cola, about inflated prices and distorted supplies.
Producers, squeezed by high energy prices and facing a flood
of Chinese capacity, say the changes could remove underpinning
from aluminum prices depressed by a global glut of metal that
over years has built up record-high stockpiles.
Beloff also said the LME was likely to suffer serious
reputational damage if it did not take necessary action at a
time when it is facing significant competition.
He denied that the LME's consultation was defective. Rusal
had two face-to-face meetings with the LME during the
consultation and had submitted written reaction to the proposal,
"The consultations were both wide-ranging and intensive,"
Beloff told the court.
(Additional reporting by Susan Thomas; Editing by Veronica
Brown and Dale Hudson)