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The proposal is that a warehouse company in any location with scheduled delivery-out commitments (cancelled warrants) of 30Kt or more of one metal (the “dominant” metal) is required to deliver out an addit..

19 Nov 2012

Commodity Online
The LME has published a new proposal to address the lengthening queues for getting metal out of its warehouses. This comes at a time when debate over queues and the effect they are having on the physical market has reached a fever pitch and is now attracting the attention of regulators.

In particular, the change to warehouse delivery-out rates is in response to “the possible effect on other metal markets of long aluminium queues in some locations”.

This basically means addressing the issue of buyers having to wait several months to receive their metal that is stuck in a long aluminium queue in places such as Detroit and Vlissingen, Barclays said in a report.

The proposal is that a warehouse company in any location with scheduled delivery-out commitments (cancelled warrants) of 30Kt or more of one metal (the “dominant” metal) is required to deliver out an additional 500t in that location of metals other than the dominant metal and on top of the prevailing daily delivery-out rates.

Three locations would be the most affected: Detroit, Vlissingen and New Orleans, which have the largest concentrations of metal amongst the smallest number of warehouse companies.

"In our view, any increase in the load-out rate for non-dominant metals will go some way towards addressing the spill-over effect of long (mainly aluminium) queues on other metals. However, it does not tackle the issue of long queues for aluminium or zinc." Barclays said.

On this issue, the LME believes that the increase it made this year to minimum delivery-out rates based on the amount of metal in warehouses “goes as far as it reasonable to address the effect on the aluminium market of long queues in some locations”.

If the new proposal by the LME is applied to all live cancelled warrants as of 1 April 2013, as Barclays understand is proposed, it would go some way towards separating the non-dominant queue from the dominant metal (aluminium or zinc) queue and provide a combined minimum load-out rate for non-dominant metals.

This may help limit the potential for queue-induced spikes in physical premiums in other metals such as those witnessed in aluminium.


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