- Responses to latest market consultations
- Discussion paper issued regarding final two elements of reform package and further possible structural reforms
- Aluminium premium contracts and new ferrous products to launch 26 October 2015
- Fresh consultation on increasing load-out obligations under LILO for warehouses with structural queues
- COT report enhancements to be considered
The London Metal Exchange (LME) today published its responses to the legal and logistical consultations launched in November 2014 regarding its physical delivery network. Also issued was a discussion paper including the final two elements of the LME’s warehouse reform package and further possible structural reforms. In addition, a new proposal was put forward to increase the load-out rate of metal at warehouses affected by structural queues, by adjusting one of the parameters of the Linked Load-in / Load-out rule (LILO).
“The LME wishes to thank all the companies and industry groups who made time to respond to these two consultations,” said Garry Jones, LME CEO. “We are pleased that further headway is being made in tackling the complex issues surrounding the LME physical network – a vital component of the LME’s operation and of the global metals business.”
In response to some valid issues raised by market participants during the consultation process, the LME has revised several elements of its legal and logistical review proposals, due to be implemented on 1 June 2015. The Exchange has provided more detailed guidance on the kinds of incentives (sums paid by warehouse owners to metal owners to attract metal into their warehouses) it deems abusive. To address concerns regarding the reporting of these incentives, the LME has also agreed that the reports should be anonymous in order to protect the identity of the underlying clients.
Following positive market feedback, the LME has confirmed its clarification of ‘load-out’ at warehouses, which was made to prevent the abuse of LME load-out requirements. The new definition of ‘load-out’ states that metal must be shipped to a different warehouse operator or to a consumer in the same LME location, or it must leave the location altogether. However, certain consultation respondents indicated that some participants would like to be able to temporarily use non-LME storage situated in the same warehouse, before the metal is loaded out per the revised definition. The LME has agreed to ask its Physical Market Committee to consider whether such a service could be allowed, while not diluting the protection against potentially abusive behaviour provided by the new definition.
The conclusion of the legal and logistical consultations has also opened the door to a discussion surrounding the final elements of the warehouse reform package, namely the re-assessment of the possibility of capping or banning rents in queues and of capping the level of daily rents and FOTs. The LME today published a discussion paper regarding these, among other, proposed structural solutions to warehouse queues, including an analysis of possible competition law concerns. The LME welcomes views from the market and will provide an update on any further steps following the close of the two-month discussion period.
The LME is pleased to announce the launch date of its aluminium premium contracts on 26 October 2015, following today’s confirmation of the rule changes necessary to bring the product to market. The LME believes this allows sufficient time for further clarity to be drawn from the discussion paper items, which is vital given the potential impact of these items on the market for premiums.
In the interest of efficient connectivity testing, the LME will also launch its suite of steel contracts in tandem with the premium contract launch. European cash-settled rebar and scrap will be added to the existing physically settled billet contract. Since the re-regionalisation of LME Steel Billet and the introduction of a separate steel load-out rate, the contract has shown stronger price convergence.
Today the LME has also issued a consultation proposing to increase the rate of load-out under LILO by adjusting one of its underlying parameters. The LILO rule began to positively affect load-out behaviour from 1 July 2013, the date of the initial LILO consultation announcement. However, given the delay on the implementation of the rule due to a legal challenge by Rusal, the LME has proposed (in light of its regulatory obligations) to increase the rate of the decline in queues. A consultation will run from today until 30 March 2015.
“Today’s announcements all stem from the reform package initiated in November 2013, and we remain confident that these initiatives, along with the proposed amendment to the LILO rule are, on balance, the best solution for all LME stakeholders,” said Matthew Chamberlain, LME Head of Business Development.
Lastly, the LME notes the feedback regarding the request to increase the granularity of the Commitments of Traders (COT) report that has been published weekly by the Exchange since August 2014. The Physical Market Committee is already considering this question, and the LME believes this is the correct forum for this discussion. The LME is willing to consider changes to its report if the Committee sees a need for it, and will communicate any next steps in due course.
For further details please visit the warehouse consultation page on lme.com.