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Aluminum market encouraged by LME rules

Nov 08, 2013 | 11:07 AM | Michael Cowden

Tags  London Metal Exchange, LME, warehouse, Novelis, Nick Madden, Rio Tinto Alcan, Aleris, Alcoa Midwest premium

CHICAGO — Aluminum consumers and some North American aluminum producers applauded sweeping changes announced Nov. 7 by the London Metal Exchange.

Atlanta-based Novelis Inc. is encouraged by the development, chief supply chain officer Nick Madden said in a e-mail to AMM.

"At first review, the rule changes outlined by the LME appear to be a significant step in the right direction, balancing the diverse input received during the consultation process," he said. "I am optimistic that these changes will help to address this long-standing and complicated issue."

Montreal-based Rio Tinto Alcan Inc. also welcomed the LME’s warehousing rule changes. "We view this as an important step to address the recent market and economic forces that have combined to create a set of challenges in the warehousing aspects of the LME’s activities," a company spokesman said via e-mail.

Cleveland-based Aleris International Inc. neither endorsed nor criticized the LME’s announcement. "In terms of the LME specifically, all industry participants will benefit from a warehousing system that is driven by market-based supply and demand fundamentals," a company spokesman said in an e-mail.

But Aleris is still reviewing the move, the spokesman said. "We don’t yet know the impact that these changes will have," he said.

Pittsburgh-based Alcoa Inc. commended the LME for taking action to boost transparency, but also called for the exchange to provide a clear time frame for its planned reforms (, Nov. 7).

Metal consumers generally cheered the LME’s decision, reasoning that it should reduce what they considered to be inflated regional premiums and increase metals availability.

"In the long run, what you want is to be able to get metal out in a reasonable time frame. That just makes sense," one consumer said, although he also expressed some concern about the impact of potentially lower premiums and metals prices on producers. "They kept putting metal in (warehouses) when they had excess capacity, and now they’ve created their own monster."

A billet producer said his company expected the Midwest premium to drop and, in the process, reduce the attractiveness of the North American market to overseas billet producers. The Midwest premium plus billet upcharge, which he pegged at roughly 22 cents, should tumble even if the billet upcharge remains unchanged to a figure that would make shipments to markets in Asia or South America more attractive, he said. "Guys who are making deals with offshore suppliers might want to look at developing relations domestically," he said.

But a second billet producer questioned why Midwest premiums might be impacted but not other regional premiums such as European Union duty-paid or spot Main Japanese Port (MJP). "If Midwest goes down, so does E.U. duty-paid and MJP. I don’t see how this impacts metal flows," he said.

A second consumer said it was still too early to say which direction premiums might take, but questioned why there had been such a long lag between the LME announcing that it had made its decision and making that decision public. "The government may be slow to act, but I don’t think we’ve heard the last of this from a regulatory standpoint," he said.

The LME is looking to slash long lines for metals at exchange-listed warehouses and has shortened the limit on the length of queues it will permit at individual warehouse locations to 50 days, down from a 100-day limit proposed in July. Under the proposals, warehouse companies with an outbound delivery backlog of more than 50 days in an individual location will have to deliver out more than they load in, according to a scaled formula (, Nov. 7).

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