Rusal battles with LME on aluminium price

Rusal, the world's largest aluminium producer, has reignited its war of words with the London Metal Exchange, saying the LME has allowed financial speculators to distort prices.

Vladislav Soloviev, chief executive of the heavily indebted Russian group, said the price of aluminium traded on the LME has been depressed by as much as 30 per cent by the actions of "money-market players".

"The LME price does not reflect the real supply and demand balance," said Mr Soloviev, as he called on the exchange to increase transparency and provide further detail on market activity.

Rusal, controlled by billionaire businessman Oleg Deripaska, produces 7 per cent of the world's aluminium, a lightweight metal that is used in everything from soft drink cans to car bodies.

The Moscow-based company successfully restructured its $10bn debt pile last year and now wants to become the world's most profitable aluminium producer by focusing on higher margin products for the automotive and construction industries. However, it faces headwinds from softening aluminium prices.

It has also been involved in a bitter legal wrangle with the LME over plans to reform the exchange's warehousing system and introduce new rules to tackle long queues that built up in the aftermath of the financial crisis.

Mr Soloviev, who took up the position of chief executive in November, said the LME should not focus on load out rates from the warehouses but on increasing transparency around trading so participants could see the positions held by funds and other financial players.

"The LME needs to start with transparency," he said. "And then restrictions."

The LME did not comment on claims of market distortion but said it was "surprised" by Mr Soloviev's comments on market transparency, saying it had published Commitments of Traders reports since August 2014. MUST PAR

"We have endeavoured to produce a report that will reflect as accurately as possible the business activity of users within the current market format," the LME said.

Mr Soloviev is not the first senior Russian business figure to attack the role of speculators in London and New York for distorting commodity prices. In February, Igor Sechin, a close ally of President Vladimir Putin and chief executive of Rosneft, the state-backed Russian oil company, rounded on financial speculators, blaming them for the 50 per cent drop in crude oil prices.

Mr Soloviev forecast the all-in aluminium price - the LME cash price plus a premium for immediate delivery - would not fall below $2,000 a tonne, arguing this was the level that would accelerate further shutdowns in the industry.

Since the financial crisis, Rusal estimates 6m tonnes of smelting capacity - or about 25 per cent of current production - outside China has been mothballed. It reckons there will be a 1m tonne deficit of aluminium outside China as supply struggles to keep pace with demand, which it expects to grow at 6.5 per cent in 2015.

However, aluminium traded on the LME has fallen 2 per cent to $1,838 a tonne this year, weighed down by a stronger US dollar and fears that a growing surge of supply from China will flood the global market. Premiums have fallen much more rapidly because of the reduction in LME warehouse queues. Since reaching $2,548 a tonne in November, the all-in price has fallen to less than $2,100 a tonne.

Mr Soloviev said Rusal had abandoned plans to sell coal assets owned by the company, including a 50 per cent stake in Kazakhstan's Ekibastuz coalfield. "We did not receive an economically viable proposal," Mr Soloviev said. "We will keep them as they generate cash."

He also ruled out selling or spinning off Rusal's 28 per cent stake in Norilsk Nickel and said Rusal might refinance some of the money it has borrowed from Russian state banks with loans from western lenders. The Russian central bank has interest rates at 14 per cent to attempt to underpin the rouble.

"I don't have a deal on the table now . . . as soon as we have a cheaper proposal we will go forward," he said.

Mr Soloviev said he believed it would be possible to bring Rusal's debt down to a "normal" level within the year as long as aluminium prices remained supported.

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