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LME warehouse fix 'not enough': Novelis' Madden

Keywords: Tags  London Metal Exchange, LME, warehouses, aluminum, queques, rules, Novelis, Nick Madden load out rates

LONDON — The London Metal Exchange’s proposals regarding warehouse load-out rates do not go far enough, and ignore better options for tackling the massive queues at some locations, Novelis senior vice president and chief supply chain officer Nick Madden said.

Better solutions would have been to set load-out rates as a percentage of stocks held in each warehouse or to cap the amount of metal that can be held by a warehousing company in each location, Madden told AMM sister publication Metal Bulletin.

Madden’s preferred option would be to stop warehouses from charging rent on canceled metal that has been in the delivery queue for a certain period of time, which would encourage warehouse companies to clear their queues faster to make space for rent-paying deliveries to replace the cancelled material.

While Madden, as a consumer of aluminum, would have liked to see the LME take one of these routes to address the warehouse issue, he conceded that the exchange is in a difficult position.

"I have some sympathy with the LME. It’s trying to steer around a lot of different interests," he said. "The real issue is that the LME is trying to create rules in an area with insufficient regulation. The proposals are well-intentioned, but there is more that can be done."

Linking daily stock inflows and outflows to steadily reduce the queues will benefit the market, but the measures are not thorough and the applicable queue length is too long, Madden said. "The rules will only impact warehouses with a load-out queue of 100 calendar days or more."

"It’s not enough and it’s not soon enough. We said the same when the load-out rates were changed in 2012. It will ultimately lead to improved behavior, but it’s not enough," Madden said. "One hundred days is not an acceptable period to have inventory idle."

A version of this article was first published in AMM sister publication Metal Bulletin.

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