The London Metal Exchange needs to boost its transparency by publishing data on long and short positions, the ceo of Alcoa Inc said.

In an interview with Metal Bulletin, Klaus Kleinfeld said that LME prices are being largely determined by risk-seeking investors but that the lack of data surrounding their activities makes it tricky to ascertain the scope of their influence.

“The real problem is that today we don’t have enough transparency about how much of the LME price is really determined by investors,” he said.

“Unfortunately, the LME has not yet taken that move [to show open interest by trader category], and it is necessary for the market to see that information,” he added.

The Commodity Futures Trading Commission (CFTC) publishes a breakdown of open interest in futures and options markets by trader category, allowing market participants to assess the impact speculators and index funds could be having on commodity prices.

Kleinfeld said the “fast money” investors appear to wield an unhealthy influence on prices.

“The LME price is determined by a group of financial investors who are extremely risk seeking, and looking for trading opportunities, with zero interest in the physical metal,” he added.

He noted that, because of this, these participants have no influence on physical premiums, which have shot to record highs in recent months.

“The regional premium is determined by physical demand and that is determined by two factors – consumers of metal, and the emerging group of risk-averse investors who are looking for a risk-free asset that gives them a buffer against volatility,” he said.

“These factors determine the regional premium today, but they don’t determine the LME price.”

Andrea Hotter
Twitter: @andreahotter