UPDATE 1-UK watchdog to look again at metals warehouses

Wed Jun 29, 2011 1:15pm EDT

(Adds details, comments)

By Susan Thomas and Pratima Desai

LONDON, June 29 (Reuters) - The UK anti-competition watchdog said on Wednesday it will take another look at activity by large traders on the London Metal Exchange that also own warehouses, after lawmakers again raised concerns.

A parliamentary committee on Wednesday said it had alerted the Office of Fair Trading (OFT) to more concerns that the same firms that trade metals are able to hold large amounts of metal stored in warehouses monitored by the LME, the world's top metals exchange.

"The committee has drawn our attention to these additional submissions and we'll be considering them," an OFT spokesman said.

Controversy grew in recent months after one firm, which trading sources identified as Glencore , gained control of up to 80 percent of lead stocks at the same time that cash premiums for the metal soared.

Traders and consumers seeking metal have also been stymied by long warehouse queues or stung by inflated premiums which they say do not reflect underlying end-use demand.

The Science and Technology Committee first alerted the OFT to the concerns in a report last month.

The watchdog said then that it did not see any obvious competition issues that would merit further investigation at this stage, but it would reconsider the matter if it received "any evidence of potential competition concerns in future".

On Wednesday the parliamentary committee published on its website a submission by Anthony Lipmann, owner of metals trading company Lipmann Walton & Co, who said there were conflicts of interest "on many levels".

"With this predominant position by traders and banks, there is evidence to suggest that trader-owned warehouses are favouring their own proprietary business over other users of the exchange," Lipmann said.

The May report said there were four very large companies that own warehouses and named U.S. investment bank JP Morgan , which owns warehousing company Henry Bath.

Goldman Sachs and traders Trafigura , Noble Group and Glencore are also in charge of their own warehousing units.

The warehouse owners have said they comply with LME rules, which has no restrictions on ownership of warehouses monitored by the exchange.

"It's our view that there is no conflict of interest," Chris Evans, the LME's head of business development, told Reuters recently. "Nobody has brought forward any evidence to suggest that an unfair advantage is going on."

"It is the case that we have never restricted ownership of LME approved warehousing. We have a strict procedure to ensure that information is not shared between the warehousing operation and the warehousing operation."

The LME in May denied any improper activity was taking place.

Science and Technology Committee senior assistant Andy Boyd said the committee was urging "all the people submitting evidence to us to forward it to the OFT".

"It's not really the committee's remit now. We are requesting people to take up the issue with the OFT," he said.

(Reporting by Susan Thomas)