London Metal Exchange aims to further cut warehouse logjams

[LONDON] The London Metal Exchange (LME) announced new rules and proposals on Monday aimed at further slashing delivery backlogs at its global network of warehouses.

The move comes as part of a wide-ranging reform package, sparked by consumer complaints about long delays to obtain aluminium from storage and lawsuits accusing banks and commodity companies of conspiring to restrict supply through the warehouse network.

The LME, the world's oldest and biggest market for industrial metals, also said in a statement it planned to launch new contracts for aluminium premiums and ferrous products on Oct 26.

The LME launched consultation last November on a second layer of rules governing physical delivery and its global network and on Monday it requested even more feedback on further measures.

The exchange asked members for their opinion on proposals that would force warehouses reduce queues faster.

The 137-year old LME won a major court battle in October, giving it the green light to implement its initial set of regulations on Feb 1 aimed at cutting delivery queues to a maximum of 50 days from up to two years at some depots. "We are pleased that further headway is being made in tackling the complex issues surrounding the LME physical network," said LME Chief Executive Garry Jones.

The exchange, owned by Hong Kong Exchanges and Clearing Ltd , released a discussion paper on the possibility of capping or banning rents in queues.

Buyers of metals have complained about having to pay high rents during the months that metals were stuck in backlogs waiting to be delivered from warehouses.

Previously the LME has rejected the idea of setting rent levels at warehouses, saying it had legal advice that it might fall foul of competition law.

The exchange published a detailed set of new rules on Monday to take effect on June 1, one of which will require warehouse firms to report anonymously incentives paid to metal owners so it can determine whether those payments market distorting.

It also clarified the definition of a "load-out", saying metal must be shipped to a different warehouse operator, a consumer, or it must leave the location.

The LME said it may relax the rule, however, in response to criticism, to allow temporary non-LME storage in the same warehouse.

REUTERS