Inc.s top executive downplayed the potential impact of
proposed changes to load-out policies at London Metal Exchange
warehouses and any possible downward effects they might have on
proposed rules wont apply before 2014 and address a
problem that Alcoa chairman and chief executive officer Klaus
Kleinfeld questioned the necessity of resolving.
"When you look at
these so-called inventories that are stuck in the LME, we are
really only referring to the canceled warrants," he said.
account for only about 2 million tonnes of total stocks both in
LME warehouses and those stored elsewhere, or "inventories
visible and invisible" of approximately 10 million tonnes,
Kleinfeld said. "The rest of the metal is moving about freely.
I also believe that probably the majority of the metal that is
getting canceled is ... going to lower cost off-warrant
Kleinfeld made the
comments during a conference call following the release of the
Pittsburgh-based aluminum producers second-quarter
earnings results July 8.
The rules largely
apply to Metro International Trade Services LLCs
warehouses in Detroit and Pacorini Metals Vlissingen BVs
stocks in Vlissingen, the Netherlands, he added.
LME warehouses held
more than 5.4 million tonnes of aluminum as of July 9, of which
more than 1.4 million tonnes were in Detroit and more than 2
million tonnes were in Vlissingen.
Under new exchange
proposals, LME warehouse companies will be required to deliver
out more metal than they draw in at storage locations with long
load-out queues (
amm.com, July 1).
But Kleinfeld said he
was "not exactly sure" what the proposed new LME warehouse
policies were attempting to achieve, brushing aside published
concerns about metal availability. "I dont think (metal
availability) has even been an issue in the aluminum market,"
he said. "If there is somebody who hasnt got metal
available ... you can send me an e-mail or give me a call and
well solve that."
Some consumers have
also used cheap financing to build their own consignment stocks
and "have acted as warehouses" themselves, he said.
Alcoa, nonetheless, is
studying the proposed changes and will provide its views to the
LME, Kleinfeld said. But the goal of any new regulation should
be to avoid any "disruptive or sudden impacts" to the market
and instead implement the changes "gradually over time," he
Kleinfeld also brushed
off concerns about premiums falling, saying inventory financing
remained attractive given widening contangos on the LME for
aluminum and continued low interest rates. Besides, interest
rates are unlikely to climbanother factor that could make
warehouse deals less attractiveuntil the economy
improves, he added.
And if the economy
were to regain its footing, physical demand would also improve,
"so I am really not too concerned," Kleinfeld said, noting that
both the U.S. and European economies were "recovering slowly
with different speeds."
participants expressed concern that warehouse incentives,
premiums, spreads and prices could fall and the market could be
swamped with metal almost immediately after the new LME
policies are revealed (
amm.com, July 5).