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LME rule change impact seen minimal

Keywords: Tags  LME warehouse rules, Detroit warehouse, New Orleans warehouse, primary lead, special high grade zinc, SHG zinc, primary aluminum, LME premiums Daniel Fitzgerald


NEW YORK — Aluminum, lead and zinc market participants see only a minimal impact on supply and premiums if the London Metal Exchange adopts proposed changes to warehouse load-out rules, which are intended to alleviate queues for metal.

Under the latest proposals, which would go into effect in April 2013, warehouses that hold more than 30,000 tonnes of canceled material and have at least 30,000 tonnes of a single, "dominant" metal will be required to deliver out an extra 500 tonnes per day of metals other than the dominant one, if requested (amm.com, Oct 15).

Substantial queues have developed at the Detroit and New Orleans warehouses as large amounts of aluminum and zinc have created bottlenecks, with some buyers forced to wait until 2014 to receive their metal.

In Detroit, where aluminum is the dominant metal, 40,625 tonnes of lead had been canceled as of Monday’s close. In New Orleans, where zinc is the dominant metal, 49,600 tonnes of aluminum and 29,350 tonnes of copper had been canceled, according to LME data.

While most market participants are still digesting the details and implications of the proposed load-out rates, one lead broker told AMM Tuesday that an acceleration of load-outs from Detroit warehouses was unlikely to have much of an impact on the wider market.

"I don’t think it will do anything once the lead comes out. I’d say it will be absorbed, probably into the next battery season," he said.

He added that he still expects "stiff premiums" to come into effect for lead, given the overall shortage of primary lead in the United States.

One special-high-grade (SHG) zinc consumer said that greater availability could lead to improved supply in the wider market, but he wasn’t expecting to feel too much of an impact himself.

Primary aluminum traders contacted by AMM also failed to see a dramatic impact from the proposed changes.

"It will impact the locations where there is a lot of other metal, but I don’t think it will impact (aluminum) premiums or prices," one producer said. "Load-out rates for aluminum are the same."

The move also won’t stop the financing deals that created the queues in the first place, a second producer said. As long as interest rates remain low and the contango is in effect, traders will continue to profit from shipping metal to LME-listed warehouses, he said.

"At the moment, metal is scheduled to come out. The problem is there’s more going in. But we won’t see a change in the Midwest premium until the fundamental reason for putting metal in warehouse (changes)."

Suzy Waite, New York, contributed to this story.


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