LME announces next steps in warehouse reforms

 London, 5 February 2014

The London Metal Exchange (LME) today announced the next key steps in its series of warehouse reforms initiated in November 2013. The primary aim of the reforms is to reduce the build-up of queues at affected warehouses. These changes are on track for implementation, as planned, on 1 April 2014. The market is already beginning to see the impact of these changes through reduced queues at affected warehouses.

Following a rigorous tendering process, the consultancy firm Oliver Wyman has been selected to conduct a full-scale logistical review of the LME’s warehousing network. The review aims to provide an independent view on reasonable operational expectations and requirements for the loading in, holding and loading out of metals.

External consultancy appointed to conduct logistical review of warehousing network
Prof Phillip Crowson appointed as chairman of Physical Market Committee
Legal review of Warehousing Agreement to be conducted by Addleshaw Goddard LLP
LME committed to investigate the viability of premium hedging tools
The LME has also commissioned a legal review of its Warehousing Agreement to be conducted by Addleshaw Goddard LLP. The review will run in parallel with the logistical review to ensure that the Warehousing Agreement remains fit for purpose and to implement any proposed changes.

The Exchange is delighted to announce the appointment of Professor Phillip Crowson as chairman of its new Physical Market Committee, which will meet for the first time in March 2014. The committee will provide a forum for the physical industry to put forward their views to the LME.

“Today’s announcement demonstrates the strong progress made in implementing the package of measures announced last November,” said Garry Jones, CEO of the LME. “The appointment of external, independent consultants to conduct a full logistical review and the establishment of a Physical Market Committee represent tangible steps towards ensuring the LME’s physical network continues to support our global contracts.”

The LME Special Committee is now responsible for sanctioning the enforcement of the Exchange’s powers to investigate the formation of queues and to impose additional load-out obligations on warehouses that incentivise queues.

In addition to these measures, the LME continues to assess the viability of introducing premium hedging products.

“An element of premiums is related to the existence of queues, and this element will fall as our new rules take effect,” said Matt Chamberlain, Head of Business Development at the LME.

“The LME is aware of current market concerns in respect of high premiums in the aluminium market. It is important to note that an element of premiums is the result of regional supply and demand, unrelated to the existence of queues. While such regional premiums are a natural feature of a global contract, we remain committed to investigating the possible introduction of premium hedging tools to aid premium discovery and hedging.”

Ends --

Further updates on the warehouse reforms programme will be communicated to the market in due course.