Influential traders and people at a senior level in large
brokerage and physical trading houses have recently been
bending my ear about London Metal Exchange warehousing, the
potential sale and MF Global.
The hoarding of metal in LME-approved
remains a touchy subject.
I don't altogether share the view of these senior
figures that there is blame to apportion here; as I've
said before, traders are only using the available opportunities
to maximise returns for their shareholders, which is what they
are employed to do - but I seem to be in a
The veterans all felt that something ought to be done to
address the issue, and that if it isn't done, then things will
end up in a courtroom.
My view is that the issue is much wider, and the fault, if it is a fault, lies with
- in other words, shovelling free money
down the throats of the commercial banks.
The people I have been talking with brushed aside a short piece
in Metal Bulletin last year from law firm Holman Fenwick
Willans, which suggested there was no general remedy in law for
this situation, and added that only specific contracts might
Rumblings of legal action
There are rumblings of legal action, predicated, I
guess, on the premise that if you have bought an LME warrant (a
bearer document, let's not forget), then it is somehow
inequitable that you may not be able to take possession of your
goods for several months.
Now, arguably, the LME warehousing rules and regulations will
limit the possibility of legal action, and, indeed, I think I
know which way a judgment would be handed down.
However, I have to say also that, on the back of what these
senior figures are telling me, the issue will be tested, and
probably sooner rather than later.
Now, that leads very neatly on to another issue, raised by the
same veterans - the sale of the LME. I haven't actually written
too much about this; frankly because my opinion is irrelevant -
I'm not a shareholder, and those are the people who will have
to make the decision.
With that caveat, though, I will offer an opinion, and one that
was shared by those I have been discussing the issue with.
I don't see any major advantage in a sale.
Let me say very clearly, though, that I, and the others I am
talking about here, are all towards the end of our careers in
the metals business, and it's only fair and logical that a
decision of this importance should actually pay more heed to
the needs and desires of the younger generation, who have years
ahead of them to mould and use the market.
Why change something that works?
But, for what it's worth, my thinking is: why change
something that works?
The absolute value of an LME shareholding, as a balance sheet
item, is surely less important than the ability to use it to
My - possibly jaundiced - view is that a sale would probably
spell the end of the ring and the date system; that may be
welcomed by the investment community, but I believe that gain
to them would be outweighed by the disadvantage that may bring
to the physical metal industry.
Anyway, be that as it may, what has that got to do with the
warehousing issue I raised above?
Well, just this; are potential buyers going to be more or less
impressed with what they might be buying if it is embroiled in
lawsuits, or even the possibility of them, over delivery
Then there is the MF
issue, which is also weighing heavily on the minds
of people trading in the London markets.
The LME remains the centre of world metal trading.
Yet it is based in the City of London, the reputation of which,
like it or not, has taken a battering as a result of MF Global
clients here being in line for far smaller disbursements after
the bankruptcy than those in other financial centres.
This too must surely be weighing on the minds of those
exchanges in Asia and the USA that are circling the exchange.
So, these are the thoughts of a group of older-generation
Yesterday's men, or those with experience to learn from?