* Buyers face record surcharges, queues at LME warehouses
* Glencore and Trafigura among owners of warehouses
* New LME owner inherits controversy over warehousing
By Maytaal Angel and Susan Thomas
LONDON, Dec 3 The European Union's competition
watchdog has received a complaint against owners of metal
warehouses for being so slow to release aluminium that it is
forcing up prices for manufacturers, a consumer body said.
"I'd expect the competition authorities to be looking at
this as the subject has been raised with them," said Malcolm
McHale, president of the Federation of Aluminium Consumers
FACE and other consumer sources did not name the warehouse
companies concerned in the complaint to the European Commission
Directorate General for Competition. Any delays at warehouses
mean buyers pay more in storage costs before they take delivery
of the metal.
Glencore and Trafigura are among
commodity trade houses that own warehouses in Europe registered
by the London Metal Exchange (LME), the world's biggest metals
Both Glencore and Trafigura, contacted by Reuters, declined
to comment on the complaint.
Some metal market participants say trading companies are
acting within their rights and that long queues are largely the
result of the difficulty and expense of moving aluminium out of
vast sheds in ports such as Vlissingen in the Netherlands.
The European Commission competition body and the LME
declined to comment on the report of a complaint.
Consumer sources said the watchdog, which has the power to
impose fines of up to 10 percent of company revenues, had not
yet opened an investigation, although it has to follow up on
"When someone says the market is being kept short, and big
finance houses who are LME members are managing massive
inventories of metal in warehouses and outside warehouses, where
else would you go but the competition authorities," McHale of
McHale declined to say when the complaint had been made or
to name the consumers who had complained. One industry source
said they included a major maker of aluminium goods.
The complaint follows one made by aluminium manufacturers to
the commission's enterprise and industry department, which is
also inquiring into the accusations. A source said the same
companies had complained to competition authorities.
The controversy over warehousing is now a problem facing the
LME's new owner, Hong Kong Exchanges and Clearing Ltd (HKEx)
, whose $2.2 billion takeover of the metal exchange was
approved by British regulators last week.
Warehouses registered by the LME at ports around the world
are supposed to allow companies that need metal to take delivery
of supplies, if necessary, against the exchange's futures
Normally the consumers would buy metal under long-term
contracts, but the warehouse network allows the LME to perform
its role as a market of last resort.
Manufacturers have long struggled to compete for aluminium
supply with banks and trade houses that hold stockpiles of the
metal for years on end as collateral for finance deals.
Their problems have come to a head as queues, sometimes
lasting months, have developed across the LME warehouse network.
Industrial consumers say the queues result from warehouse
owners concentrating metal into sheds at single locations and
releasing it only at the minimum daily rate mandated by the LME.
The result, makers of aluminium goods say, is to keep even
more metal away from industrial buyers, pushing up surcharges or
"premiums" for the metal.
A concern is that the queues have developed only at LME
warehouses owned by banks or commodity traders. Critics say they
stand to profit both from high premiums and from gaining insight
into price drivers such as warehouse inventories.
"It is a conflict of interest but there is no law that
prohibits banks and trade houses owning warehouses or financing
the storage of commodities. The problem is when this conflict of
interest translates into anti-competitive practice," said a
source who is in contact with the competition authorities.
Spot market aluminium premiums - paid over the LME
cash price to secure physical delivery - have risen so
high this year they increasingly form a key part of the revenue
of aluminium producers, even helping keep some smelters afloat.
Manufacturers of items like soft drink cans, however, say
the premium has at times exceeded the conversion charge they get
for turning aluminium into finished products, prompting some to
lobby the authorities.
"There's quite a number of extruders that have had to reduce
or shut down capacity. It's impossible to pass through increased
premium costs," said an executive at a major aluminium
fabricator based in Europe.
The LME, which has come under criticism for its handling of
warehouse backlogs, recently raised its minimum load-out rate in
a bid to prevent other metals like nickel, tin, copper and lead
from getting stuck behind the queues for aluminium, and more
recently, for zinc.
It says that queues exist primarily because of a metal
surplus made profitable by financing deals, and that it cannot
eliminate them through raising the load-out rate. It also says
it cannot dictate who owns its warehouses.
Metal buyers hope the exchange's new owners might tackle the
problem forcefully, especially as the big banks and trade houses
who own the warehouses have less influence on its policy after
they sold their LME shares during the takeover.