United Co. Rusal told a U.K. court it may lose “tens of millions of pounds” under new warehousing rules from the London Metal Exchange that the company said were illegal, irrational and in breach of its human rights.
The LME, the world’s biggest industrial-metals marketplace, “should have investigated the alternatives properly,” Rusal’s lawyer, Monica Carss-Frisk, said today in a hearing at the High Court of Justice in London. “Not least an option that is less damaging” to Rusal, she said.
The LME, a unit of Hong Kong Exchanges & Clearing Ltd., changed its rules in an effort to shorten times for withdrawing metals from some warehouses amid complaints that delays were raising costs for consumers. The U.S. Commodity Futures Trading Commission is investigating warehouse operators’ practices. Rusal is the world’s biggest producer of aluminum.
Oliver Winters, a spokesman for Moscow-based Rusal, declined to comment, as did LME spokeswoman Miriam Heywood.
The LME, which licenses about 700 warehouses worldwide, said in November it would require storage operators where withdrawals took more than 50 calendar days to ship out more metal than they take in. The exchange gave market participants three months to comment on the new rules, which take effect April 1.
The exchange should have considered capping rents charged by warehouses with lengthy waits to store metal and presented other alternatives as well as reasons for their dismissal, Carss-Frisk said. Rusal wants the LME’s decision quashed and other options considered by the exchange. The new rules violate the Human Rights Act because they constitute “a disproportionate interference with the claimant’s possessions,” Rusal said in court documents.
The changes were intended to ease a backlog of withdrawal orders that caused a divergence between the benchmark LME aluminum contract and the physical price of metal. Premiums, added to LME prices for metal at a specific location, are set to drop once the warehouse rules fully affect the physical market in August, according to Harbor Intelligence, an Austin, Texas-based researcher. The surcharges, which rose to records last month, helped producers maintain output, according to Citigroup Inc.
The changes probably will reduce aluminum prices including premiums and cause “severe hardship” for producers, with “potential for irreversible damage” if smelters have to close as a result, Rusal said in court documents. The decision to link rates at which warehouses take in and deliver metal was “flawed” because the LME’s scrutiny was insufficient and the exchange failed to take account of relevant considerations, it said.
“The LME conducted a fair consultation which afforded consultees including Rusal an opportunity to make intelligent representations in relation to the LME’s proposal,” the exchange said in court documents. “Consulting on one sufficiently developed alternative rather than a ‘laundry list’ of alternatives is both fair and rational.”
The LME has concerns about the potential effect on the market if a new consultation is ordered, the exchange’s lawyers said. The bourse decided to act to fulfill statutory duties that include maintaining an orderly market, they said. Rusal must identify possessions that qualify for protection under the Human Rights Act, according to the documents.