UPDATE 2-LME board makes decision on warehousing, gives no details
By Eric Onstad and Veronica Brown
LONDON Oct 25 (Reuters) - The London Metal Exchange (LME) decided on Friday whether to overhaul its controversial warehousing network which is plagued by backlogs, but said it would only reveal details later.
The world's biggest and oldest metals marketplace has come under increasing regulatory and legal scrutiny over its metal storage practices, with complaints about long queues to withdraw physical metal from its warehouses.
"An in-principle decision has been made, and an announcement will be made in due course with the results and details of the consultation," a brief emailed statement said following an LME board meeting.
The statement did not say why the LME - acquired by Hong Kong Exchanges and Clearing last year for $2.2 billion - was delaying the announcement and spokeswoman Miriam Heywood said no further comment was available.
In July, the LME proposed new rules to overhaul the delivery system from next April that would force warehouses to release more stocks once the wait-time breaches 100 days.
An industry source said he had no knowledge of the decision, but expected that the proposals would be adopted.
"I'd be really surprised if they moved away from the preliminary plan. They've done a lot of work, so I don't see why they'd change," said the source, who declined to be identified.
"They've suitably upset enough people."
Clients of the warehouses say the system inflates prices for aluminium, mainly used in packaging and transport, even though the market is in global oversupply.
This has resulted in U.S.-based lawsuits by consumers, distributors and others alleging aluminium price-fixing and anti-competitive behaviour by investment banks, large trading houses and the LME.
Earlier this month the LME's new chief executive Garry Jones said he was ready to fight the lawsuits, and that critics should not expect a silver bullet to fix their concerns with it.
The LME has been caught in the middle of criticism of the proposed new rules from both major producers and end-users of the metal.
Consumers, including brewer MillerCoors LLC and aluminium products maker Novelis, want drastic changes to warehousing rules to bring down what they pay to get metal, known as a premium.
Producers, however, are worried that drastic changes could unleash the stocks onto the market, hitting a price that is already languishing.
Both Russia's United Company Rusal and U.S. Aloca Inc, the world's two biggest aluminium producers, have publicly lobbied for the LME to leave its warehousing rules unchanged.
The LME's crisis in warehousing has also emboldened rivals.
Earlier this month, the U.S.-based CME Group Inc announced plans to launch a physically deliverable aluminium futures contract that could compete with the LME's $54 billion market.
Overproduction in the aluminium sector has sent record amounts of aluminium into warehouses since the global financial crisis hit in 2008.
LME warehouses hold 5.4 million tonnes of the metal, but it is concentrated in only two locations . Two-thirds of the total is stuffed into sheds in the U.S. automaking centre of Detroit and the Dutch port of Vlissingen.
Since LME rules allow warehouse operator to deliver only a trickle of metal to customers compared to how much they take in, huge backlogs have built up to access the metal.
This has been lucrative for the warehouse owners since they earn rental income for the metal caught in the backlogs.