Alcoa Inc. (AA), the largest U.S. aluminum producer, is urging the London Metal Exchange to provide more transparency into its marketplace for the lightweight metal.
The current system isn’t sustainable, Klaus Kleinfeld, Alcoa’s chairman and chief executive officer, said in an interview. At stake, he said, is the London exchange’s relevance as the price-setter to producers and users of aluminum, the metal used in products from beer cans to aircraft.
"The outcome of price determination that is not transparent is eventual lack of trust,” Kleinfeld said by phone yesterday. “People will look for alternatives.”
Alcoa joins United Co. Rusal, the world’s largest aluminum producer, and Norsk Hydro ASA (NHY), Europe’s third-largest producer, in calling on the LME to reveal more about who holds metal contracts. Hong Kong Exchanges & Clearing Ltd. bought the LME for $2.2 billion last year. The market in London is the biggest for aluminum and other industrial metals.
The LME should report similar data to that disclosed by exchanges under the scope of the U.S. Commodity Futures Trading Commission, New York-based Alcoa said in a letter to the U.S. Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection.
The letter was submitted to the subcommittee for hearings held July 23, four days after the Federal Reserve said it’s reviewing its decade-old decision to let banks store, transport and trade raw materials.
While the LME publishes simple data on positions held by buyers and sellers, it lacks details published weekly by the CFTC such as net long positions held by hedge funds. The CFTC’s weekly commitment of traders report provides a breakdown of futures and options contracts held in commodity markets such as gold, oil, corn and other raw materials.
MillerCoors LLC told the Senate subcommittee on July 23 that unfair LME rules used by Goldman Sachs Group Inc. (GS), the owner of one of the biggest U.S. aluminum-warehouse networks, JPMorgan Chase & Co. (JPM) and other warehouse owners boost costs and delay shipments.
Goldman Sachs said in a statement on its website that commodity prices fell in recent years, countering claims of rising costs by beverage companies.
The premium that buyers pay to obtain aluminum in the U.S. fell for the first time this year, dropping to 11.8 to 12 cents a pound on July 18 from a record 12 to 13 cents, Harbor Intelligence, an Austin, Texas based researcher, said.