* LME says can't resolve logjams, calls on industry
* Logjams only at warehouses owned by banks, trade houses
* Consumers pass complaints to EU watchdog
By Susan Thomas and Maytaal Angel
LONDON, Feb 1 The world's top maker of aluminium
for beverage cans has lost patience with the London Metal
Exchange's failure to tackle access problems at the warehouses
the LME monitors and says it will seek a solution elsewhere.
Novelis has long criticised the warehouse system for
contributing to record-high price premiums for aluminium, a
metal in chronic surplus.
"The LME sees no need to do anything else, even though they
sympathise with the aluminium consumers," Nick Madden, vice
president and chief procurement officer at Novelis, a unit of
Hindalco Industries, said in an interview.
Madden's words follow a speech by Chris Evans, LME head of
business development, who told a recent conference in the United
States that the solution to the problem would have to come from
the market, rather than the LME.
"I can only conclude that now that we have tried the direct
approach and failed, Novelis will have to work through other
stakeholders," Madden said.
"We will continue to be active, we just have to find some
other way to get attention, we have to try other avenues."
Madden, whose company has been speaking out about the
current LME warehousing problems since 2011, declined further
Europe's competition watchdog received a complaint late last
year against owners of LME-registered warehouses for ramping up
rental profits by letting long queues for metal grow at some
NEW OWNERSHIP CREATES HOPE
Metal buyers also hope the exchange's new owner, Hong Kong
Exchanges and Clearing, will tackle the problem
forcefully. The big banks and trade houses that own the
warehouses will now have less influence on exchange policy after
they sold their LME shares during the takeover.
For those warehouses, backlogs are lucrative because metal
waiting to be delivered out continues to earn storage fees. They
also say the backlogs are due to the logistical difficulties of
moving large amounts of metal.
LME rules stipulate a low minimum load-out rate for metals
stored in the warehouse network that the exchange monitors.
Warehouses do not have to deliver out any more than the
minimum. They are also free to set their own rents, and even if
the LME raises the load-out rate, they can raise rents to
compensate for any loss of income.
Novelis has proposed that the load-out rate for the
warehouses carrying the largest stockpiles should be trebled.
The LME rejects this proposal.
"There is no solution that the LME could or should propose.
This isn't a debate about delivery (out rates)," Evans told the
"This is an aluminium industry problem, and it is the
industry that must come up with a solution. If fabricators
choose to sell at uneconomic levels, they will of course lose
Fabricators are crippled by high premiums because they are
paid a percentage of the LME base price for converting a sheet
of metal into a can for example. They are not able to pass on
the costs of premiums, which in some cases might equal their
Premiums for duty-paid aluminium in Rotterdam are currently
at record highs of around $300 a tonne - about 15 percent of the
LME base price. Benchmark U.S. Midwest spot aluminium
premiums have also reached a record high.
They have been rising since the financial crisis pushed
interest rates to near zero, making the financing deals both
lucrative and safe.
The financing deals, which have locked up more than 70
percent of LME aluminium inventories, keep metal away from
industrial users, while at the same time resulting in a
concentration of metal in certain LME locations.
This exacerbates backlogs when material is booked for
delivery by industrial or other users of the exchange, putting
even more upward pressure on premiums.