LMEWEEK-Wait time in spotlight as copper users cheer LME warehouse plan
* Copper firms Luvata, KME say LME plan shows intent to improve system
* 100-day wait to get metal still too long - aluminium industry
* If approved, plan to come into effect next April
By Maytaal Angel and Susan Thomas
LONDON, Oct 4 (Reuters) - Top European copper users have backed the London Metal Exchange's plan to reform its warehousing system, even as a smarting aluminium industry stays frustrated with storage practices blamed for inflating charges to obtain material.
Warehouse companies owned by big banks and trade houses have made money by building stocks in LME-registered warehouses and allowing queues to grow for clients seeking to withdraw material, all the time charging rent.
End-users say this has caused waiting times of more than a year to get metal out, distorting availability and inflating physical prices or "premiums" to record highs - especially for aluminium, which is in chronic oversupply.
In an effort to address those concerns, the LME has proposed that as of next April, a warehouse company with wait times of more than 100 days in a single location must load out more metal than it loads in, according to a formula.
"We believe with regards LME warehousing there is clear willingness and clear intent to improve the situation so today we are less worried," John Peter Leesi, chief executive of copper products maker Luvata, told Reuters ahead of the LME Week industry gathering in London.
Riccardo Garre, chief executive of copper fabricator KME Group, the industrial unit of Italy's Intek Group SpA , said: "The proposal is at least trying to prevent deregulation of the warehousing rules. It will help prevent further deterioration."
'BEYOND THE WIT OF MAN'?
The proposal will be voted on this month, but top-level sources say that given the unprecedented regulatory scrutiny of warehousing, the LME might have to consider forcing warehouses to cut wait times further.
"We look forward to improvements but one of our concerns is that a queue of 100 days is still not acceptable," Alex Jennings, chief purchasing officer at beverage can maker Rexam, said. "It shouldn't be beyond the wit of man to get metal out of a warehouse in a shorter period (than 100 days)."
Sources familiar with the matter said from their discussions with the LME it was likely the exchange would endorse the proposal as it is, but the LME could shorten the 100-day wait time.
"Twenty days would be good, but we think there could be a compromise at 50," a metals industry source said. "We believe this will be an ongoing process, and the proposal is just the beginning of the changes the LME will make."
Under current LME rules, warehouse companies with more than 900,000 tonnes in one location are required to load out metal at a minimum rate of just 3,000 tonnes per day, regardless of how much is delivered into the facility.
COPPER MARKET SATISFIED
Aluminium consumers say the rules have enabled warehouse owners including Goldman Sachs, JPMorgan, Glencore-Xstrata and trade house Trafigura to build lucrative backlogs at their storage depots.
However, in contrast to copper consumers Luvata and KME, they do not believe the LME's plan to reduce wait times to a maximum of 100 days is far-reaching enough.
"We believe that the changes would gradually shift the market in the right direction. However, (they) would be difficult to administer and enforce and would take too long. No delivery delay is acceptable," Nick Madden, chief supply chain officer at aluminium user Novelis, said in his latest blog.
Meanwhile, top aluminium producers such as Alcoa and Rusal are openly hostile to the LME's warehouse plan, warning that it risks creating further market distortions by incentivising the storage of aluminium in non-LME warehouses.
The LME, however, has little scope to accommodate the concerns of aluminium producers who have benefited from rising premiums, given it is facing unprecedented political pressure to reform its warehouse rules.
The U.S. Commodity Futures Trading Commission and the U.S. Justice Department have begun preliminary probes into all LME warehouse companies, while the LME is also a co-defendant in private lawsuits filed by U.S. aluminium consumers.
Premiums are paid above the LME cash price to cover physical delivery costs such as transport and insurance. In the aluminium spot market, they have risen in Europe from $145 per tonne in December 2011 to a record near $300 a tonne in June.
- Insight: How U.S. spying cost Boeing multibillion-dollar jet contract
- Exclusive: Secret contract tied NSA and security industry pioneer |
- With Fed out of the way, what's next on Wall Street?
- Millions of Target shoppers face new debit card limits
- Insight: For Chinese farmers, a rare welcome in Russia's Far East