A lobby group representing European Union aluminium consumers on Thursday welcomed the probe into the London Metal Exchange (LME) market, saying price trends had been at odds with stock levels.
"It is to the credit of the LME it has expanded this inquiry as in the long run price manipulation tarnishes the image of our industry," the Brussels-based Federation of Aluminium Consumers in Europe (FACE) said.
The LME, the world's largest non-ferrous metals market, started an investigation into its aluminium contract in August, probing possible collusion among participants, warehouse stock levels and individual trading patterns.
In December it said it had evidence of a form of collusion and misconduct by non-LME members, and referred this to Britain's Financial Services Authority (FSA) - the UK's top markets regulator.
FACE said its members needed competitive low cost aluminium to survive, but had had to manage commitments against continuing price increases and backwardations when published LME inventories implied a price closer to $1,350 than $1,550 a tonne.
The backwardation, when nearby prices are higher than those further forward, in the cash to three months spread flared to just under $60 a tonne in late July 2003 when LME warehouse stocks were climbing to around 1.3 million tonnes, their highest for over eight years.
This spread reverted to a more normal contango, when forward prices are higher than nearby, in September and is now around $16.
The LME reviewed telephone conversations held at certain members' offices and at their trading booths at the LME. Tapes also revealed some traders made untaped mobile telephone calls from their employers' office. Use of mobile telephones to trade from members' offices, at both the member and the LME, is not permitted.
LME disciplinary powers do not extend to non-members and its ability to investigate their activities fully is limited.