Metal Exchange warehouse companies will be required to deliver
out more metal than they draw in at storage locations where
long load-out queues have developed, under new exchange
proposals following a review of its warehousing policy.
The new load-out
model, which will be subject to a three-month consultation,
will link daily stock inflows and outflows to steadily reduce
the queues that have developed to withdraw metal from locations
such as Detroit, New Orleans, Antwerp, Johor and
While the LME has
taken action previously to make non-dominant metals that are
stored in those locations more readily available to the market,
the queues for the dominant metals have increased at some of
those ports since its most recent changes came into effect in
April, the LME said July 1.
concentration of LME stocks in those locations also has
exacerbated the effects of the queues on the function of
warehouses as a market of last resort, as physical users have
found less material available in other locations for prompt
withdrawal. For example, there were 283,100 tonnes of zinc
stored in LME warehouses in Europe on July 1, but only 13,175
tonnes were stored in locations where there are no significant
queues to withdraw metal.
Charles Li, chief
executive officer of LME owner Hong Kong Exchanges &
Clearing Ltd., last year pledged to examine how the queues were
affecting the physical market, and take appropriate action.
"Previously, I was
quoted as saying I would take a bazooka to the
warehouse queue issue if getting access to metal were a big
problem. But our assessment is that buyers have access, so we
are not facing a fundamental problem with our market and a
bazooka is unnecessary," Li said in a blog post accompanying
the LME announcement July 1.
Under the new
proposals, in cases where it would take 100 calendar days or
more to clear the backlog of canceled metal in a given
location, warehouse companies will be subject to a calculated
cumulative incremental load-out rate on top of their normal
obligations until the queue drops below the 100-day
To stop companies from
loading up their warehouses before the full introduction of the
policy, the LME will immediately record the inflow and outflow
of metal in all locations for the next nine months. At the end
of that period, any "affected warehouses" with queues of more
than 100 calendar days will be required to deliver out over
three months a cumulative incremental load-out rate equal to
the total net inflow of metal during the nine-month period, the
Separately, from April
1 the LME will track inflows and outflows over a three-month
period to calculate a cumulative incremental load-out rate that
will be equal to half of the amount of the new metal placed on
warrant, up to 3,000 tonnes, and all of the metal placed on
warrant over and above the minimum load-out rate. For example,
a warehouse that draws in 3,000 tonnes in one day would be
required to deliver out an additional 1,500 tonnes, on top of
its normal 3,000-tonne-per-day obligation, the LME said.
The LME said it
anticipates certain unintended consequences of the new system,
such as a tightening of nearby spreads, as shorts find that
warehouses are unwilling to take deliveries and they are forced
to roll their positions forward.
The LME board is
expected to make a final decision on the policy at a meeting in
A version of this article was first published by AMM sister
publication Metal Bulletin.