London Metal Exchanges 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
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.
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. Its 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."
"Its not enough and its not soon enough. We said
the same when the load-out rates were changed in 2012. It will
ultimately lead to improved behavior, but its 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.