Atlanta-based Novelis Inc., an aluminum products manufacturer and recycler, on Friday blasted a High Court ruling in the United Kingdom that the company said will lead to backlogs of aluminum for delivery and inflated prices, ultimately leading to higher costs for consumers.
Novelis is among major manufacturers, including soft drink producers like Coca-Cola, beer companies like MillerCoors and automakers, that rely on aluminum held in warehouses like those registered by the London Metal Exchange. The warehouses, owned by companies such as JP Morgan, Goldman Sachs and Glencore Xstrata, have been accused of purposely keeping large stockpiles with long delivery “queues” to keep prices paid by Novelis and others artificially high.
Critics say warehouses have an incentive to keep stockpiles high because of the rents they receive and metal owners profit since prices for future deliveries may exceed current prices.
Last year U.S. regulators, including the Justice Department, began investigating the backlogs at LME-registered warehouses. The exchange, which has also faced lawsuits, was set to impose a new rule that would ease the stockpiles and long queues, and that backlogs had already begun to decline, according to multiple media reports.
But the UK High Court on Thursday blocked the new LME rule after it was challenged by Rusal, a Russian company and the world’s largest aluminum producer. Rusal, which feared more aluminum on the market would depress prices, argued LME violated the law over how consultations were carried out on changing its rules, and the court agreed.
Novelis is a major supplier of aluminum sheet and foil products to automotive, transportation, packaging, construction, industrial and consumer electronics markets around the world.
In a statement, Novelis President and Chief Executive Officer Phil Martens said the UK ruling will cause an “unprecedented backlog at LME warehouses.”
“Primary aluminum producers, traders and banks have created an artificial global shortage and driven spot premiums to ridiculously high levels,” Martens said. Buyers pay premiums above prices for spot supplies. “This exploitation of an artificial market squeeze appears to us to be blatant and the effects are being felt further down the supply chain and ultimately by the end consumer.”
Martens did not say specifically how Novelis’ costs would be affected.
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