Aluminum is the most abundant metal in the world, constituting eight percent of the earth’s crust and behind oxygen and silicon as the third most abundant element on earth. It’s tough to get anywhere without it, be it by plane, train, bicycle or boat. Based on it’s presence in beer cans it also allows for countless arguments with your British, Canadian, Australian friends on its proper pronunciation.
Alcoa Inc (NYSE:AA), the United States largest producer of aluminum, has recently asked the London Mercantile Exchange to add more transparency to the trading of the lightweight metal or risk losing relevance to both producers and users as the price setters of the metal that involves itself in nearly all aspects of human life in the modern world.
Alcoa charges LME with lack of transparency
The current system isn’t sustainable, Klaus Kleinfeld, Alcoa’s chairman and chief executive officer, said in an interview with Bloomberg recently.
“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 Inc (NYSE:AA) is not alone in this belief. United Co. Rusal, the world’s largest aluminum producer, and Norsk Hydro ASA, Europe’s third-largest producer, have also called on the LME to do more in showing who holds the larger metal contracts on the exchange. While the LME was purchased by Hong Kong Exchanges & Clearing Ltd. last year, the change of ownership has done nothing to change the fact that LME remains the largest trading floor for aluminum and other industrial metals.
Alcoa sends plea to Senate Banking Committee
Alcoa Inc (NYSE:AA) sent the U.S. Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection a letter recently sharing its belief that the LME should add transparency to trading similar to the exchanges that fall under the purview of the U.S. Commodity Futures Trading Commission.
The CFTC’s weekly commitment of traders report shows a breakdown of futures and options contracts held in commodity markets such as gold, oil, corn and other raw materials whereas the LME only provides bare-bones information on positions held buy buyers and sellers.
It’s clear that Alcoa Inc (NYSE:AA) is pushing to find out more about the net long positions held by hedge funds and investment banks.
MillerCoors LLC told the Senate subcommittee on July 23 that the lack of transparency on the LME allows JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc (NYSE:GS), along with other aluminum warehouse owners to boost costs and delay shipments. This claim was countered by Goldman citing lower aluminum prices in recent years on its website.