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LME Proceeds with Warehouse Reform Proposals

Metal News - Published on Thu, 07 Nov 2019

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The London Metal Exchange will proceed with its proposed package of measures aimed at optimizing its warehousing network for the benefit of the global metals industry. Taking consultation feedback into account, the LME believes that the measures, which combine three areas of focus logistical optimization, transparency & compliance and rebalanced rules and a pathway to simplification offer the optimum combination of enhancements to encourage more stocks in to LME warehouses, provide greater transparency as to global levels of inventory, and bring market-wide positive effects. The LME recognizes the broad spectrum of views on certain of the items, and is also setting out the measures it will take to monitor the phased implementation of these items, and deliver an evidence-based assessment of their impact on the market.

The proposed phased parameter changes to Queue-Based Rent Capping from 50 days to 80 days over a nine-month period which are designed to allow warehouse companies to compete more effectively for metal, was one area that attracted substantial feedback. Some were concerned that this may increase both operational and structural queues, as well as allow warehouse incentives to “outbid” physical market premiums.

In respect of queues, the LME rules now guard against the structural queue model, and operational queues are not expected to become more frequent since warehouse companies would prefer to retain metal than build up an operational queue which will cause destocking. While the proposed QBRC model is also designed not to cause incentives to rise above physical market premiums, the LME’s incentives reporting regime will monitor this risk further. In any case, the new QBRC parameters have been designed to phase in gradually in order to allow the LME to monitor the market and stop implementation should any disruption occur. The Exchange has today provided further detail on the market indicators which it will observe during and following the implementation period.

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Posted By : Yogender Pancholi on Thu, 07 Nov 2019
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