London Metal Exchanges warehousing regulation changes
wont have a major effect on the availability of aluminum
to consumers, Robin Bhar, head of metals research at
Société Générale SA, said.
Bhar argued that
financing deals are still likely to continue to reduce the
availability of metal, as there has been little change in the
current low interest rate environment.
(aluminum) premiums, these should now be capped and a further
moderate fall can be expected, which we believe will be offset
by higher spot prices," he said.
Aluminum premiums fell
after the LMEs initial announcement July 1 that it was
proposing to link load-out rates to the length of queues,
although they have recently firmed again and moved slightly
Spot prices will rise
as stock financiers remove metal from LME warehouses, bound for
cheaper, private storage, which could lead to a decrease in
market transparency, Bhar told AMM sister publication
"(This means) the
realized pricethe spot (aluminum) price plus a
premiumremains largely unchanged, in our view," he
The proposed changes
to the warehousing policy were aimed at reducing the amount of
time users must wait to gain access to metal, Bhar said, but
added these users arent likely to be consumers. "(Rather,
it will be) banks, trading houses, investors, etc.,
representing financial users involved in the cash-and-carry
trade," he said.
senior economist in industry and industrial metals at
Amsterdam, Netherlands-based ABN Amro Bank BV, said he believes
at least some stakeholders will derive benefits from the new
rules, while others will be disappointed.
"But it is certainly
not all doom and gloom. In the long run, this new rule will
create a more balanced market in my opinion," he said.
"Producer discipline has been limited so far in oversupplied
metal markets. Capacity has to be cut eventually in order to
bring the balance back into markets."
with Bhar on the impact of the new rules on consumers, however,
saying they are likely to applaud the new rules. "It will
result in a more orderly functioning metal market, with more
material being more easily accessible at lower costs," he
however, that there is likely to be a further fall in aluminum
premiums. "However, premiums will fall, and with current spot
prices nearby production costsfor the high-cost metal
producersmore producers will face increasing financial
challenges," he said.
metal producers will be driven out of the market, Burgering
said, and this will reduce the availability of material.
Furthermore, it is
likely that under the new rules LME stocks will be moved
between warehouses, LME-listed and otherwise, which could have
an effect on the ease with which inventory levels might be
measured, he said.
"The shift between LME
warehouses will result in more equal distribution, but material
will also be delivered to other warehouses, which will be more
difficult to register," Burgering said. "If this is the case,
we will have no clear vision on the exact inventory levels,
making our jobs as analysts more difficult."
On the other hand,
Simon Collins, head of nonferrous and bulk commodities at
Amsterdam-based Trafigura Beheer BV, said his company welcomes
the new measures.
"We were glad to have
the chance to submit our views as part of the consultation
process, and are delighted to see that the LME board has gone
further than its original proposals against the background of
an often polarized debate," he said. "These decisions will make
a strong and sustained contribution to the smooth running of
the LME system once they come into force."
physical aluminum market has said it needs time to digest the
changes to LME warehousing regulations before it can react.
"I have no immediate
comment on the rules, but it seems to be in line with what the
market expected," a trader said.
The market also
remains undecided on the potential benefits of reducing the
queue limit to 50 days.
"It is too soon to
discuss (the impact) of the 50-day rule. We will need time to
review the whole LME (statement) before we can make a comment,"
a producer said.
to report. We need time to digest the plans first," a second
One trader said,
however, that he believes the move to a 50-day queue
requirement wont have much immediate impact on the
"To me, what looks
very important is that the change has now been confirmed," he
version of this article was first published in AMM sister
publication Metal Bulletin.