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LME addresses warehouse, delivery disruptions

Mar 26, 2020 | 11:32 AM | New York | Andrea Hotter

Tags  LME, LMEsword, LMEselect, warrants, warehousing

The London Metal Exchange has developed procedures to manage the temporary unavailability of one of its approved warehouses or delivery points that might stem from the Covid-19 outbreak.

These measures, which are in line with the exchange’s Warehouse Agreement, address potential issues around delivery obligations, warranting and rent payments, it said. 

“These procedures have been discussed with the LME Warehousing Committee and would only be invoked (via LME notice) in the event of closures relating to Covid-19,” the LME noted. 

A delivery point - and therefore all warehouses operating there - or an individual warehouse within a delivery point could be forced to shut for a period if a government imposes a lockdown or staff become sick. The result could be market tightness or physical supply disruption caused by difficulties in putting metal on warrant or delivering metal into and out of bonded warehouses. 

The LME also has contingency plans in place to enable warehouse listings to temporarily take place remotely should it become necessary to do so.

“This will ensure that listings for additional warehouse space can still be considered, as long as supporting evidence can be provided to show that the warehouse meets the LME’s listing criteria,” the exchange added. 

The LME expects its listed warehouses to have robust procedures in place to deal with the effects of the coronavirus, it said. Warehouses should make every effort to continue to meet their obligations under the Warehouse Agreement and its policies. 

The exchange has undertaken several measures in response to Covid-19, including temporarily closing its open-outcry trading floor and going to electronic price discovery from Monday March 23.

Warranting update

Earlier this month, it outlined further contingency plans for its metal warranting process, under which physical warrants are held in a central depository.

The LME is working with its depository provider on contingency plans for its warranting business, it said. Delays are possible if the virus affects the service. 

“Currently, the depository service has not been affected by the coronavirus outbreak, and the depository has taken additional steps to minimize the risk to its current operating model. These measures include deploying staff to various locations to avoid cross contamination between teams, and enhanced hygiene practices,” the exchange said. 

“Should a member of staff contract the virus, the current plan is for the depository service to cease for a time to allow for a deep clean of the premises before a new team can be brought on-site to support the service offering. As a result of these measures, members may experience a delay during times of peak activity in relation to their lodgment or withdrawal instructions,” it added. 

Some brokers have already trimmed their LME warrant business over logistics concerns. Category-1 broker Amalgamated Metal Trading (AMT) placed its LME warrant trading book on hold.

Currently, warrant holders must pay rent due on warrants up to and including Tuesday March 31 by the end of the month or they will not be transferred within LMEsword, the exchange’s warrant transfer system. All warrants subject to a “cleared” transfer instruction via LMEsword from Friday March 27 onward must be rent-paid up to and including March 31.

“The LME recommends that rent is paid as soon as possible to ensure warrants are endorsed and available for delivery,” it added.


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