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New controversy engulfs London Metal Exchange's warehouses - Andy Home

Metal News - Published on Fri, 15 Mar 2019

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Reuters reported that London Metal Exchange’s warehouse problems are back. Long load-out queues earlier this decade generated media scandal, a flurry of legal action and intense regulatory scrutiny of the exchange. The ensuing raft of reforms to its storage network appeared to have laid the issue to rest. At the end of February, there was a 229-day queue to get aluminium out of warehouses in Malaysia’s Port Klang. That’s business days, not calendar. Some of that metal is at the centre of a dispute between the warehouse operator, ISTIM, and trading powerhouse Glencore , which has lodged a complaint with the LME. The argument turns on the minutiae of the exchange’s labyrinthine warehouse rules but the underlying problem remains the same as ever.

ISTIM has built a dominant warehousing position in Port Klang which it is now leveraging to exact maximum revenue at the cost of exchange users.

This is a rerun of what caused the original queues first at Detroit and then the Dutch port of Vlissingen, where the aluminium load-out wait stretched as far as 774 days at one stage in 2014.

Now as then, LME warehousing has moved from ancillary function to driver of the market.

It is ironic that both sides in the Port Klang dispute have previous queue form.

Glencore, through its logistics arm Access World, was “the owner” of the Vlissingen load-out queue, while ISTIM in its former guise of Metro International was the originator of the queue template at Detroit.

Both are expert players of the complex LME warehousing game and between them they appear to have exposed a flaw in the rule-book.

The disagreement hinges on whether there was a queue at ISTIM’s Port Klang facilities at the end of January.

Yes, according to Glencore, apparently vindicated by the LME’s own monthly report showing a waiting time of 118 days for aluminium.

No, according to ISTIM, which says the queue existed only from midnight Feb. 1.

The difference of opinion boils down to the time-line governing Glencore’s aluminium warrant cancellations and shipping instructions and ISTIM’s subsequent allocation of load-out berths.

Confusingly, the LME itself seems to have different cut-off points for when a queue is reported as existing and when it triggers a faster load-out requirement by the warehouse operator.

This clash of warehouse and trading giants may be over just a few hours’ difference but it has significant financial consequences for both sides.

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Posted By : Rabi Wangkhem on Fri, 15 Mar 2019
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