industry executives have called for greater transparency in
London Metal Exchange price-setting mechanisms, with one asking
whether the exchange had turned into a casino.
"Is the LME there for
price setting or has it become a gambling house?" said
Vladislav Soloviev, first deputy chief executive officer of
Russias United Co. Rusal.
become a key part of LME trading, and their influence means
metal prices arent truly reflecting supply and demand, he
said at AMM sister publication Metal
Bulletins 28th International Aluminium Conference in
"There is no
transparencythis is the issue that has to be addressed,"
Soloviev said, calling for the publication of data similar to
the U.S. Commodity Futures Trading Commissions
Commitments of Traders report.
The lack of
transparency is "hard to explain to customers because there are
doubts over the (price-setting) mechanism of the LME," said
Oliver Bell, executive vice president of rolled products at
Oslo, Norway-based Norsk Hydro ASA.
Aluminum premiums have
hit record highs in the past couple of years, partly due to the
long queues to access metal in LME-approved warehouses.
over the issue has spurred the LME to review its rules, and
proposed changesscheduled for an LME board vote in
Octoberhave already resulted in lower aluminum
There are other
consequences, according to Nigel Steward, Rio Tinto Alcan
senior vice president of technology and supply chain. "The
decline in regional premiums is putting more pressure on our
smelting business," he said. "The focus on costs is becoming
more intense. ... Producers need to be in the first or second
quartile of the cost curve in order to survive."
aluminum producers could be forced to make cuts due to the
lower income from premiums, which in turn could lift LME
prices, the executives said.
The increased costs
resulting from higher premiums have been a heavy burden for
metal consumers, British can maker Rexam Plc said. "The LME
consultation gives the industry the opportunity to discuss the
costs that affect our business. Its difficult to hedge
the premium cost," Rexam chief purchasing officer Alex Jennings
have claimed that the warehouse queues and higher premiums are
costing them an extra $3 billion per year (
amm.com, July 23).
Aluminum prices have
fallen 40 percent since 2008 because a decline in LME tags
havent been fully offset by a 45-percent rise in aluminum
premiums, which make up a far smaller portion of the overall