Rusal urges greater transparency in LME's disclosure of positions

Russian aluminum producer Rusal said Monday that there is a need for greater transparency in the London Metal Exchange's disclosure of commercial and non-commercial positions on the exchange.

"Specifically, the LME should introduce disclosure of commercial and non-commercial positions on the exchange. This would enhance understanding of the dynamic between producers, consumers and traders, which in turn would boost the ability to understand the market place for policy makers and actors alike," Rusal said in a statement.

The move by Rusal comes after leaders at the G-20 summit last week in St. Petersburg signed a declaration calling for the G-20 to facilitate better functioning of physical and financial commodity markets.

Rusal says that the aluminum market has been transformed in the last 10 years by the sharp rise of financial investors.

"Where aluminum was traditionally bought almost entirely by industrial end users, the majority of aluminum and aluminum 'futures' are now bought by speculative or financial investors holding the metal or future obligations on the metal to profit from a rise in its value," the producer said.

Rusal pointed out that in 2012 aluminum derivatives were 30 times higher than real industrial demand for the metal.

"Patterns of trading in aluminum markets have been transformed in the last decade by speculative investment in the metal. We still do not understand this change well, and that lack of understanding stands in the way of sound policy and effective strategic planning for business," the company said.

The lack of understanding made it harder to plan and harder to hedge against risk for industrial users of aluminum.

It is also harder to determine real demand for aluminum and 'artificial' demand risks, encouraging over production, Rusal said.

It notes that the Chicago Mercantile Exchange is required by the Commodities and Futures Trading Commission to disclose a weekly aggregated report breaking trades into commercial and non-commercial categories.

"Aligning the types of aggregated, anonymous disclosure required by the LME and the CME would be a simple change that would transform our understanding of the kinds of positions that were being taken in aluminum markets," Rusal said.

The company believes that the publication of this data would strongly enhance the understanding of LME trading activity.

"It would make the market for aluminum, which is at the heart of the global industrial economy, more transparent and better understood. Good policy and sound industrial planning are only possible on the basis of such an understanding of the market," Rusal said.

The company is the world's largest producer of aluminum and produces around 4.5 million mt/year.

In 2012, Rusal accounted for approximately 9% of global aluminum production and 8% of global alumina production.