London Metal Exchange should focus on building a warehouse
network that reflects key consumption locations rather than
adjusting the networks rules, United Co. Rusal chief
executive officer Oleg Deripaska said in an interview in
The LMEs network
of approved warehouses reflects past areas of net consumption,
rendering it a poor reflection of customer needs, he said.
"The old LME was about
Europe and the United States. The new LME should be about Asia,
Southeast Asia and new growth locations. Its actually a
waste of time (putting metal in a warehouse) if you need to put
another load on a ship to get material from a warehouse to a
customer," Deripaska said. "Its not about the old
warehousesthere should be incentives to actually adjust
warehouse positions to where consumption is. We have
consumption in one place, mostly in Asia, and we have
warehousing in Europe, where consumption is almost flat."
The LME has been
working to establish a network of warehouses in China for
years, and the exchanges new owner, Hong Kong Exchanges
& Clearing Ltd., is confident it will achieve this
long-anticipated goal soon. It also recently approved
Kaohsiung, Taiwan, as a delivery location.
The LME has proposed
measures to reduce queues to take delivery of metal in some of
its approved warehouses. A decision will come in October
following an industrywide consultation, with the changes slated
to take effect in April 2014.
While stock levels are
more than sufficient for current customer needs, the situation
will be very different when demand growth picks up and
financing deals unwind, making it all the more critical to get
the warehouse system right, Deripaska said.
"By 2015, well
have a different physical supply and demand picture.
Thats because I think aluminum is just very attractive,"
he said. "The LME warehousing system should provide
opportunities to offer deliveries to customers almost on a sort
of just-in-time basis, if they need to secure some unbalanced
orders through the LME system."
Deripaska also called
on the LME to improve transparency to allow for a better
understanding of active market participants, and to help
prevent the possibility of systemic risk.
in commodity markets have developed so well over the past 15
years, and this has been attracting liquidity, especially in
aluminum. Its attracted different types of players, and
the market now includes a pure financial play," he said. "Some
players are making very risky bets, and transparency will help
us to avoid any extraordinary situation that may happen."
transparency is on the agenda for the next G-20 meeting in St.
Petersburg, Russia, in September, at which the Russian aluminum
producer will play a key role.