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**Rusal Challenges LME Warehouse Regulations, Citing Market Distortions and Legal Concerns**
Russia’s Rusal, one of the world’s largest aluminum producers, has been at the center of a legal battle with the London Metal Exchange (LME) over new warehouse regulations that it claims could worsen market imbalances and harm its business. The dispute highlights growing tensions between major industry players and regulatory bodies in the global metals market.
In November 2013, the LME introduced new rules requiring warehouses to hold metal for no more than 50 days before delivery, aiming to reduce long waiting times and improve market efficiency. However, these changes were temporarily halted following a lawsuit filed by Rusal, which argued that the policy was flawed and unfairly targeted its operations. The court ruled in favor of the LME on substantive issues, but found procedural shortcomings, allowing Rusal to win on a specific point regarding the regulation of warehouse rents.
The Hong Kong Stock Exchange, which holds a significant stake in the LME, stated that while it believes Rusal’s case lacks legal foundation, it is re-evaluating potential legal actions, including appeals. As a result, the full implementation of the new warehouse rules has been delayed, though other reforms from the original plan will proceed as scheduled.
Analysts suggest that the revised rules, which aim to speed up metal shipments, could flood the market with more aluminum, reducing price premiums and negatively impacting producers like Rusal. Given that Rusal has already faced significant financial challenges—posting a $3.2 billion net loss in 2013, the worst in over a decade—the potential for further losses due to falling prices is a major concern.
The issue of long storage queues has also drawn attention from U.S. regulators. Companies like MillerCoors have raised concerns about rising costs and supply disruptions, leading to complaints with the Commodity Futures Trading Commission (CFTC). Investigations into possible price manipulation have also been launched, with major banks like JPMorgan and Goldman Sachs facing accusations of influencing aluminum prices.
This ongoing legal and regulatory struggle reflects deeper issues within the LME, which has faced multiple lawsuits over alleged anti-competitive practices. In its 2013 annual report, the Hong Kong Stock Exchange noted that the LME was involved in 26 class-action lawsuits in the U.S., with LMEH, the parent company, named as a co-defendant in several cases. Despite this, the LME remains confident in its position and continues to defend itself legally.
Meanwhile, the LME’s performance has remained strong, with record trading volumes and revenue growth in 2013. The exchange reported a 7% increase in average daily contracts and saw significant gains in nickel, copper, and aluminum turnover. Its contribution to the Hong Kong Stock Exchange’s revenue reached HKD 1.21 billion, with a net profit of HKD 326 million—an impressive rise from the previous year.
As the legal battle continues, the outcome of the LME’s regulatory changes could have far-reaching implications for the global aluminum market, affecting not only Rusal but also other producers, consumers, and investors. For now, the situation remains fluid, with both sides preparing for further legal and market developments.