April 2, 2014
LME's Warehouse Regulations Halted by Judge's Ruling
A claim by Russian steelmaker UC Rusal against the London Metal Exchange’s new rules on aluminum warehouses was approved by a UK court. The judge found the LME's original consultation and subsequent rule change were unlawful, as fairness required the exchange to consult on alternative options. The judge specifically questioned the option of the banning or capping of rents in the new rules.
As a result of the judge's finding, the LME's original decision will be quashed and the exchange will be required to carry out a new consultation period that addresses concerns voiced both before and after the initial process.
"We welcome this decision by the high court and look forward to working closely with the LME, and indeed all key stakeholders, to ensure that the revised consultation period and subsequent rule changes serve to increase the integrity of price discovery and transparency across the market, which we believe are the key issues continuing to face the sector," says Oleg Deripaska, CEO of Rusal.
Not all aluminum executives were pleased with the ruling.
"We are very disappointed with the outcome of the legal process in the UK," says Phil Martens, president and CEO of Atlanta-based Novelis. "We have worked closely with the LME and other stakeholders for two-and-a-half years to push for changes. Unfortunately, Rusal's unilateral action resulting in this court decision will stifle the LME's proposal to alleviate the unprecedented backlog at LME warehouses and will be very destructive to the market.
"It is indefensible that queues of more than a year exist at warehouses and unconscionable that players in the aluminum market are actively working to maintain the status quo to protect artificially inflated premiums. The divergence between the LME price and the physical market price is undermining the credibility of the industry's pricing discovery process and causing havoc in the fabricating and consuming end of the industry," Martens says.