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LME rule change proposal gives warehouses pause

Keywords: Tags  Warehousing, London Metal Exchange, aluminum, zinc, copper, Glencore Xstrata, Pacorini Metals, Goldman Sachs Group Metro International Trade Services


NEW YORK — After months of paying high incentives to attract aluminum, copper and zinc into storage, warehouse companies have gone shy.

Proposed changes to the London Metal Exchange’s warehousing rules have already led warehouses to back away from attracting material into locations with long queues to access metal, a move they said will continue while they fully evaluate the implications of the changes.

Glencore Xstrata Plc’s Pacorini Metals, Goldman Sachs Group Inc.’s Metro International Trade Services and Trafigura Ltd.’s Nems Ltd. are the three big warehousing companies that would be impacted most by the new rules, which would link load-in and load-out requirements at locations with delivery wait times of 100 calendar days or more.

Many warehouses said that incentives—and therefore premiums—could drop to about $50 per tonne at locations where queues are below 100 days. And warehouses are saying that if a request to warrant metal would push a location’s queue above the 100-day level, they might even seek incentives from the owner of the metal.

To ensure they do not miss out on new business altogether, warehouse companies said they are likely to encourage the movement of metal into locations storing less material.

More than half of the LME warehouse locations approved for zinc do not contain any zinc, while a third of them hold no copper and a fifth no aluminum. Off-warrant material in locations with long queues could move to these locations, while metal also is expected to continue to move to cheaper, off-LME storage, warehouse companies said.

The fluctuation in spreads has led to a similar fluctuation in cancellations, with participants seeking to cancel and then rewarrant material, depending on the structure of the forward curve.

Warehouse companies are expected to hike rents as a result of the proposed changes, something the LME acknowledged in its proposal.

Warehousing companies are scheduled to submit their proposed rent changes at the start of December, giving them time to reflect any changes made to delivery rules in October before they kick in next April.


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