WASHINGTON, June 8 (Reuters) - Metals producer Alcoa Inc on Monday challenged the U.S. commodities regulator’s authority to intervene in a contentious overhaul of the London Metal Exchange’s warehouse policy that has caused an unprecedented drop in aluminum prices.
In March, the Commodity Futures Trading Commission deferred a decision about the LME’s 2012 application to be registered as a “foreign board of trade,” telling the exchange it should do more to address concerns about long waiting queues.
Alcoa has questioned whether the agency has the legal authority to intervene, and on Monday filed a request under the Freedom of Information Act (FOIA) to find out what had caused the CFTC to delay its decision on the LME.
“Our goal is to learn the extent to which the CFTC has engaged in substantive discussions with the London Metal Exchange,” the company said in a statement.
“The CFTC should examine any LME aluminum contract performance issues only through an open, inclusive and transparent process where all affected market participants have the opportunity to present their views,” it said.
The CFTC declined to comment.
Britain’s Financial Conduct Authority regulates the LME, but the CFTC looks at its U.S. business. The 2010 Dodd-Frank Act required the LME to reapply for its license.
Industrial buyers of aluminum, used in transport and to make beverage cans, have to wait up to two years to get delivery of metal from some LME storage locations due to excessive stockpiling which has inflated prices.
New rules from the LME, the world’s oldest and biggest market for industrial metals owned by Hong Kong Exchanges and Clearing Ltd, aim to slash the queues, with the exchange telling warehouses they must ship out at least as much metal as they are taking in.
The LME rule changes have triggered an unprecedented plunge in premiums AL-PREM in recent months, as more metal becomes available on the market.
For aluminum producers, that fall is particularly tough, with LME prices languishing close to or below breakeven for a large portion of the global smelting capacity.
In late 2013, Rusal, Russian aluminium producer, sued the exchange over the planned reforms, delaying the reforms for a while. It lost its bid at Britain’s Court of Appeal in October.
Alcoa has previously expressed “serious concerns” with the reforms, but its latest move illustrates the deepening concerns among producers about the impact of the rule changes. (Reporting by Douwe Miedema, Editing by Josephine Mason and Diane Craft)