Reuters: Regulatory News: UPDATE 2-LME sale on track, keeps metal storage under scrutiny

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UPDATE 2-LME sale on track, keeps metal storage under scrutiny Nov 16th 2012, 13:15 Fri Nov 16, 2012 8:15am EST * New warehouse rule expected to take effect on Apr 1, 2013 * Premiums futures would be to illiquid, OTC is better solution-LME LONDON Nov 16 (Reuters) - The London Metal Exchange (LME) expects proposed changes to its warehousing rules to go some way to solve problems in the network of warehouses it monitors, but would continue reviewing the situation, chief executive Martin Abbott said on Friday. He also said regulatory approval of the sale of the LME to Hong Kong Exchanges and Clearing was still on track for the end of the year. The LME, the world's largest marketplace, on Thursday proposed a new measure to alleviate the effects of long aluminium queues on other metals. The new rule requires warehousing companies that already have 30,000 tonnes of a single metal in a queue to deliver out an additional 500 tonnes per day of other metals. "We have taken a look at the impact of the aluminium queues on other metals," the LME chief executive Martin Abbott said speaking at a news conference on Friday. "We regard the presence of the aluminium queues as being a feature of the macroeconomic environment and not something that we can change... however there is a danger that those aluminium factors may have an effect on other markets which are not actually subject to the same macroeconomic factors." The LME, the world's biggest base metals marketplace, has been reviewing warehouse load-out rates as it tries to deal with backlogs appearing across its global warehouse network. Abbott told a news conference he expected the new rule, if adopted, would come into effect on April 1 next year. "If 500 tonnes doesn't work we will review it, but we expect it to work," he said. The LME has struggled to modify its warehousing system to satisfy traders, consumers and the warehousing companies. The problem has caught the attention of the European Commission, which is gathering information on the issue, industry sources have told Reuters. Abbott said the commission had not approached the LME with any questions, but added "the door is open". One way to pacify customers stung by the steep surcharges to get physical supply that have resulted from the backlogs would be to hedge those premiums, and banks are in talks on offering such a derivative. Abbott said the LME had chatted with consumers about premium contracts but did not believe that it would be a liquid enough market. Plans by banks to offer over-the-counter solutions however could work well as they can offer bespoke products, Abbott added. Link this Share this Digg this Email Reprints

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