Aluminum producer Alcoa wants openness in London's metals marketplace
Alcoa Inc., the largest American aluminum producer, is urging the London Metal Exchange to provide more transparency about its marketplace for the lightweight metal.
The system is not sustainable, Klaus Kleinfeld, Alcoa's chairman and CEO, said in an interview with Bloomberg News. 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. “People will look for alternatives.”
Alcoa joins United Co. Rusal, the world's largest aluminum producer, and Norsk Hydro ASA, Europe's third-largest producer, in urging the exchange to reveal more about who holds metal contracts. Alcoa's operations center is in Pittsburgh, and its executive offices are in New York.
Hong Kong Exchanges & Clearing Ltd. bought the exchange for $2.2 billion last year. The market in London is the biggest for aluminum and other industrial metals.
The exchange should report data similar to that disclosed by exchanges under the scope of the Commodity Futures Trading Commission, New York-based Alcoa said in a letter to the Senate Banking Committee's Subcommittee on Financial Institutions and Consumer Protection.
Alcoa submitted the letter for Senate hearings held Tuesday, four days after the Federal Reserve said it is reviewing its decade-old decision to let banks store, transport and trade raw materials.
“We welcome and will continue to listen and consider market views, and we will continue to make market transparency a top priority,” said Miriam Heywood, a spokeswoman for the exchange.
Though the exchange publishes simple data on positions held by buyers and sellers, it does not include 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 that LME rules used by Goldman Sachs Group Inc., the owner of one of the biggest U.S. aluminum-warehouse networks, JPMorgan Chase & Co. and other warehouse owners are unfair and 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 United States fell for the first time this year, dropping to 11.8 cents to 12 cents a pound on July 18 from a record 12 cents to 13 cents, said Harbor Intelligence, an Austin-based researcher.
On Friday, JPMorgan said it may sell or spin off its physical commodities business. The firm plans to continue running the commodities unit “as a going concern and fully support ongoing client activities” while it considers its options, JPMorgan said.
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