* LME taking legal advice on options, possible appeal
* Rusal welcomes ruling after fears of lower prices
* Aluminium buyers had complained of long queues to get
(Adds Alcoa shares, more comments)
By Eric Onstad and Veronica Brown
LONDON, March 27 Russian aluminium producer
Rusal dealt a stunning setback to London Metal Exchange plans
to cut logjams in warehouses, winning a court decision to halt
the reform because consultations had been "unfair and
The High Court in London ruled on Thursday in favour of
Rusal which feared prices of its products would suffer
from the LME's efforts to make owners of warehouses in the
exchange's global network deliver metal more quickly to
"The LME is disappointed with the outcome of the judicial
review," said the exchange, the world's biggest marketplace for
industrial metals, adding the new rule would not be implemented
as scheduled on April 1.
It said it was taking legal advice on its options, including
launching an appeal or restarting the
The LME oversees warehouses 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.
In a bid to appease critics of this situation, which
underpins the cost of obtaining physical metal even though the
world is awash with aluminium, the LME moved last year to
implement reforms including a cut in the maximum queues.
It was the consultation with stakeholders on this "load-in
load-out" rule that the court quashed.
Industry sources and analysts were shocked at the decision.
"This is a huge mess. This was supposed to be the LME
cleaning up its act as far as the enormous queues were concerned
with aluminium, which have fundamentally undermined the
efficiency of the aluminium market," said Nic Brown, head of
commodity research at French bank Natixis.
"I'm slightly stunned and very much surprised that the new
delivery-out rules are no longer being implemented in April."
Buyers of aluminium, such as soft drinks cans makers, have
long complained about queues of over a year to release metal
from storage at key locations including Detroit in the United
States and Vlissingen in the Netherlands.
But producers worried that a glut of metal, which could be
released from warehouses, would hit already weak prices.
The LME, owned by Hong Kong Exchanges and Clearing
, had voiced "serious concerns" in court last month
over its ability to maintain an orderly base metal market if
forced to repeat the consultation.
It said on Thursday that other reforms would go ahead,
including a logistical review, a new physical markets committee
and new position data. The package agreed last year also beefed
up the exchange's powers to act against market abuse and
involved a review of its agreement with warehouse owners.
The court found in the LME's favour on other issues.
"It should be noted that the court made no adverse comments
on the substantive merits of the proposed changes to LME's
warehousing policy," the LME said.
The judgment said the LME's consultation on its new
regulations should have included an option to ban or cap the
payment of rentals for metal stuck in queues.
"In summary, I have found the LME's consultation to have
been unfair and unlawful... and quash the LME's decision to
implement the rule," the judge's decision said.
Rusal, the world's largest producer of aluminium, sought
court permission last month for the review on grounds including
human rights - the right to peaceful enjoyment of its
"We welcome this decision by the High Court and look forward
to working closely with the LME, and indeed all key
stakeholders," Rusal's Chief Executive Oleg Deripaska said.
The LME would be required to carry out a fair and lawful
consultation process, Rusal added.
Shares in Alcoa Inc, the biggest U.S. aluminium
producer, jumped 5.3 percent to $12.50 in early trading on the
New York Stock Exchange. "There could be a perception that the
premiums... could be larger as a result," said John Tumazos,
analyst at Very Independent Research.
Premiums, which buyers pay on top of cash LME prices for
spot supplies, have soared to record highs partly due to the
warehouses queues and traders believe they could climb further
following the court ruling.
Benchmark LME aluminium prices have shed about 40
percent since touching a peak around $2,800 a tonne in May 2011.
Recently, they have been under $1,800 per tonne, close to or
below break-even for a big portion of global capacity.
(Additional reporting by Harpreet Bhal, Susan Thomas, Polina
Devitt in Moscow, Allison Martell in Toronto and Josephine Mason
in New York; Editing by Anthony Barker)