July 17, 2013 / 3:42 PM / 4 years ago

LME scheme not enough to end warehouse logjam -Japan aluminium body

* Japan Aluminium Association chief says LME move a good step

* LME move alone is unlikely to have big influence

* Japan does not need new "national project" to secure supply

TOKYO, July 17 (Reuters) - The London Metal Exchange's (LME) proposals to tackle the long queues that end-users face to obtain aluminium from warehouses is unlikely to resolve the problem, the chairman of the Japan Aluminium Association said on Wednesday.

On a separate issue, Shigenori Yamauchi also said Japan does not need a new so-called national project, in which government and companies collaborate to secure aluminium supplies, once an existing contract with Indonesia expires in October.

Companies running warehouses registered by the LME, the world's biggest industrial metals marketplace, have been making money by building up stocks and charging for storage, while they deliver metal at a limited rate to holders of LME contracts.

Over the past four years manufacturers needing metal have also increasingly struggled to get supplies as they compete with banks and trading houses, which hold huge stockpiles as collateral for finance deals.

The LME proposed a major overhaul of its metals storage system on July 1 that, if implemented, would aim to reduce queues in places where they are longest and help address the complaints of industrial companies. It also launched a three-month consultation process.

"This is a good step toward easing the problem, but people in the industry see that it won't be enough," Yamauchi told reporters.

"Manufactures want aluminium prices to reflect purely demand and supply, instead of sleeping inventories," said Yamauchi, who is also president of Sumitomo Light Metal Industries Ltd , Japan's No.2 producer of aluminium rolled products.

The artificial shortages created by financial buyers have pushed to record highs the premiums above the LME price that have to be paid to obtain physical metal, even though the market is in chronic surplus.

"The LME plan may help put pricing mechanisms on a more healthy footing, but alone it is unlikely to have a big influence," Yamauchi said.

Many warehouses in the global network overseen by the LME are run by banks as well as by trading houses.

A U.S. Senate committee will hold a hearing next week on whether banks should control physical storage for commodities, signalling that lawmakers may be toughening their stance on the lucrative business for giant Wall Street firms.

NATIONAL PROJECT

Indonesia's government is in talks to buy out the Japanese majority owners of aluminium producer PT Inalum, to generate more revenue and reduce foreign ownership in the sector, and it has indicated that an extension is unlikely.

Nippon Asahan Aluminium, a consortium of 12 Japanese firms, holds about 59 percent of PT Inalum, while the Indonesian state owns the rest.

Yamauchi said availability of aluminium had changed and supplies could now be bought all over the world.

"In the long term, demand is expected to grow and supply may become tight. Therefore it is important to secure stable sources," he said. "But I don't think now is the time to invest huge energy to make a new national project."

PT Inalum's smelter in North Sumatra produced 251,000 tonnes of aluminium ingots in 2011 and 253,271 tonnes in 2010. (Reporting by Yuka Obayashi; Editing by Aaron Sheldrick and Anthony Barker)

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