The London Metal Exchange (LME) announced on Thursday that it has approved proposed changes to its warehousing policy designed to cut queues to remove metals at warehouses, following a three-month consultation with the global metals industry. “As the world’s leading base metals exchange, the LME has a duty to the entire metals community to run a fair and orderly market. We had a responsibility to examine concerns raised about lengthy warehousing queues, as these pose a range of issues in terms of price discovery and price convergence as well as the use of the market for effective hedging,” said Garry Jones, Chief Executive of the LME in a statement. The new system is expected to come into effect in April 2014.
The initial proposal targeted warehouses with queues of more than 100 days, but as a result of the consultation the threshold has been reduced to 50 days. The proposal operates by measuring all of the metal loaded into a warehouse over a three-month period. If there is a queue of more than 50 calendar days the affected warehouse would be expected to deliver out additional metal based on a formula. For example, a warehouse currently required to deliver out a daily tonnage of 3,000 tonnes would, under the proposal, need to load out at least 1,500 tonnes per day more than it loads in. The controversy over LME warehouse queues has mainly related to the storage of aluminium and zinc, where warrant stocks currently amount to over five and one million tonnes respectively. In tin the main issue has been delays in moving tin from the Johor warehouse in Malaysia.
The LME will commission a full external logistical review of LME warehousing. In addition, it will create a new Physical Market Committee to provide producers and consumers with enhanced representation in the LME’s governance structures. The LME’s warehousing system will continue to be reviewed every six months. The exchange also intends to provide new delayed data on a per-warehouse basis and, separately, to look at publishing a “commitment of traders” report in response to market demand.
