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November 15, 2012 7:45 pm
The London Metal Exchange has announced a long-awaited change to its rules that will force companies such as Goldman Sachs and Glencore to increase the rate at which they deliver metal out of their warehouses.
Warehousing has become one of the most controversial issues in metals markets thanks to long queues to get metal out of LME-registered warehouses, which consumers argue have pushed up their costs.
Charles Li, chief executive of Hong Kong Exchanges & Clearing, which has agreed to buy the LME for £1.4bn, said recently that warehousing was one issue that could have pushed him to walk away from the deal, and promised to take a “bazooka” to the problem if he found it was having an impact on the real economy.
Since the financial crisis, large inventories of metals such as aluminium and zinc have piled up in LME warehouses. As traders ask for delivery of large quantities of metal, queues of a year or more have formed, as there is a limit, set by the LME of 3,000 tonnes a day, on the amount of metal the warehouses must deliver.
Adding to the problem, some warehouses have begun to accumulate metals in relatively short supply, such as copper or lead, behind long queues for relatively plentiful metals like aluminium and zinc.
The LME on Thursday moved to address this issue, saying it would force warehouses with a queue of more than 30,000 tonnes of one metal to deliver out an additional 500 tonnes a day of others.
The LME said the change in rules, which is still open for discussion by its members, was intended to “address the effect that long queues for one metal may have on the availability of other metals”.
It said there was nothing more it could reasonably do to address the long queues for aluminium. “Such queues are the result of broader macroeconomic forces at play in the aluminium industry,” said Martin Abbott, LME chief executive.
The move is unlikely to address the concerns of the LME’s most strident critics, who say the warehousing rules are helping to distort the aluminium market.
But one large user of the LME said the move was “more than we thought they’d do”.
“The LME has turned a corner: it is listening to its participants,” he said.
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