LME’s consultation on new warehouse reforms

The London Metal Exchange (LME) has launched a market-wide consultation on two new proposals regarding the final elements of the 12-item warehouse reforms programme initiated in November 2013 (Consultation Proposals). Following a two-month discussion period with market participants, the LME has put forward recommendations to increase the minimum load-out rate for metal stored in LME-approved warehouses and to introduce a cap on the rent charged for metal in a queue. The Consultation Proposals were selected from eight reform options outlined in a discussion paper first released in March 2015, aimed at addressing existing and potential future queues at LME warehouses, as well as the levels of rent and free-on-truck rates charged by warehouse companies. The Consultation Proposals including the following suggested changes to LME’s warehousing policies: (i) to increase the minimum load-out rate for metal stored in LME-approved warehouses; and (ii) to introduce a cap on the rent charged for metal in a queue. Increasing the minimum load-out rate is expected to speed up the reduction of queues by raising the minimum tonnage of metal that warehouses with a queue must load out on a daily basis, regardless of how much metal is loaded in. The new minimum daily load-outs for warehouses storing between 150,000 tonnes and more than 900,000 tonnes range between 2,000 tonnes and 4,000 tonnes a day, scaled according to the amount of metal stored. The introduction of queue-based rent capping would also help to provide further certainty as to the elimination of existing queues, and could prevent the occurrence of future queues. Warehouse companies that fail to deliver out queued metal within 30 calendar days would be required to halve the maximum published rent charged to the affected metal owners. After 50 calendar days no rent could be charged at all. This would remove any economic benefit for warehouse companies in maintaining a queue. To ensure no warehouse company is unfairly disadvantaged, it is recommended that queue-based rent capping be implemented with effect from 1 May 2016. By this time the market can expect remaining warehouse queues to be below the 50-day threshold, meaning that all warehouse companies will be equally impacted by the implementation of the new measure. (Source: https://www.lme.com/news-and-events/press-releases/press-releases/2015/07/lme-consults-on-new-warehouse-reforms/, 1 July 2015)