CHICAGO Novelis Inc. president and chief executive officer Philip Martens lashed out at a judgment by the United Kingdoms High Court of Justice that stopped proposed London Metal Exchange warehouse reforms from being implemented, saying the outcome would prove destructive to the market.
The Atlanta-based secondary aluminum producer has worked closely with the LME and other interested parties for more than two years to push for changes to warehouse rules aimed at trimming queues at sheds with bloated inventories, Martens said in a statement March 28.
Those efforts have been stymied by the High Courts ruling in favor of Moscow-based primary aluminum producer United Co. Rusals (UC Rusals) unilateral lawsuit seeking to block the proposed changes, Martens said. The result is that waits of more than a year for metal at some LME-listed warehouses will continue, supporting artificially inflated premiums and calling into question the relevancy of LME pricing, he said.
Nearly 5.4 million tonnes of aluminum are held in LME-listed warehouses globally, with the bulk in Detroit-area sheds, which account for more than 1.5 million tonnes, and facilities in Vlissingen, the Netherlands, where more than 2 million tonnes of metal are stored, according to LME data. The big stocks and limited load-out rates have caused long waits for metal at those locations in particular, a subject that has sparked antitrust lawsuits, Senate hearings and scrutiny from U.S. regulators.
The divergence between the LME price and the physical market price is undermining the credibility of the industrys pricing discovery process and causing havoc in the fabricating and consuming end of the industry, Martens said. He also accused primary aluminum producers, traders and banks of creating an artificial global shortage of aluminum in an effort to drive spot premiums to ridiculously high levels.
This exploitation of an artificial market squeeze appears to us to be blatant, and the effects are being felt further down the supply chain and ultimately by the end consumer, Martens said. The court decision, unfortunately, throws yet another wrench in the works and does nothing to settle the ongoing supply chain risk to aluminum fabricators and beverage marketers and other customers where premiums are at the highest levels in history.
Novelis has no plans at this time to file an appeal, a company spokesman said March 28.
AMMs Midwest premium stands at 18.15 to 18.25 cents per pound, down from highs of more than 20 cents per pound earlier this year but well above historical norms.
The market had been expecting the proposed LME reforms to warehouse loading and unloading rates to go into effect April 1. But following the courts decision, it is no longer clear when or whether those changes might be made.
While some market sources have said the ruling should have little impact on premiums, others have argued that the lack of change could push up LME prices for aluminum and regional premiums, including Midwest premiums. (amm.com, March 27).