Be Careful What You Wish For

Back in February, the CEO of UC Rusal expressed his desire to see financial players play a diminished role in the aluminum market. He stated that “capital flows driven by index investors and hedge funds in particular, have distorted the supply/demand equilibrium, sending the wrong signal for players in the market”. The recent LME proposal to eliminate some of the load out delays that exist at accepted LME warehouses has him singing quite a different tune however. Mr. Deripaska recently penned a letter to said LME ,regarding the proposal, which stands in sharp contrast to his earlier stance.  In this letter, Mr. Deripaska states that the LME proposal is an unprecedented intervention and one that Rusal strongly objects to”.  We suspect that Mr. Deripaska’s earlier statements were made in an effort to see some rationalization in production come to the aluminum market. However, the reality is that the structural, persistent contango (aided by LME rules) has led to a sustained  high levels of premiums for Rusal and others.  We also suspect that any changes to the LME delivery rules will most likely result in a flood of metal released unto the market eliminating most of the premiums that exist today. Any changes to the existing LME rules has to be looked at as a long term positive for the market.  However,  the self serving attitudes exhibited by Alcoa and Rusal in response to these changes, have the potential to inflict long term damage on the reputation of the marketplace itself.