Rusal high court win delays LME loading rule changes

The UK High Court of Justice has upheld a complaint about the LME's consultation process regarding changes to load-out rules and subsequently they will no longer come into effect as of April 1.  This will have significant consequences for the aluminium market, with incentives around financing deals and premiums shifting. The LME press release can be found here.

This should ensure that premiums remain higher for longer.

The Court ruled in favour of Rusal on the issue that the LME consultation did not encompass or make reference to the banning or capping of rents.  So the ruling is not so much against the new rules themselves, but more an issue with the process.

So what does this mean? For the aluminium market, the big change is that "affected" warehouses, which in the case of aluminium are Detroit and Vlissingen, are now more likely to again start accumulating metal under financing deals, as there will be no immediate repercussions in terms of having to load-out the metal.

As I posted here, both these warehouses were on track to have little net inflow from 1 July 2013 to 1 April, which was the start of the first calculation period.

Vlissingen had seen very little net inflow after load-ins dried up since early January.

Detroit had a larger requirements under the previous timetable, but had also not seen any significant load-ins since February.

To be sure, aluminium premiums for delivery sky-rocketed which Detriot and Vlissingen sure large inflows back in November/December and have been more stable since these warehouses have delivering metal out over Jan/Feb. The risk is that

This news is not bullish for LME aluminium prices, as it means that premiums will continue to support producers at a time when a bit more supply discipline would be welcome.

While the focus will be on aluminium, there are warehousing issues emerging in other metals as well.  For example, queues for nickel at LME warehouses have expanded rapidly in the past few months.

While only Johor would have been considered an "affected" warehouse under the previous timetable, this legal challenge to rule changes will affect the LMEs ability to deal with this emerging issue.

To be sure, with LME nickel inventories are still rising, it suggests hoarding is playing a role in the recent rally in nickel prices and premiums.

While I am not a legal expert, there is also the issue of potential further legal action against the LME that could further delay changes.  While this outcome seems to be more about the process than the rules themselves, subsequent legal challenges could provide more unexpected hurdles for rule changes to take effect.

This will reduce the risk for affected warehouses entering into financing deals or other hoarding behaviour.