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London Metals Exchange Announces New Storage Rules

Seeking to tackle allegations of mid-stream price-manipulation and speed up physical deliveries, on Thursday the London Metal Exchange officially notified its members of significant changes to the
Michael Teague is a staff writer for Equities.com. His previous experience includes three years as the associate editor of Los Angeles-based Al Jadid Magazine, a bi-annual review of the arts & culture of the Middle East, where he contributed many articles on the region in the form of features and book & film reviews. His educational background includes a BA in French literature from the University of California, Irvine, where he developed a startling proclivity for anything having to do with the 19th century.
Michael Teague is a staff writer for Equities.com. His previous experience includes three years as the associate editor of Los Angeles-based Al Jadid Magazine, a bi-annual review of the arts & culture of the Middle East, where he contributed many articles on the region in the form of features and book & film reviews. His educational background includes a BA in French literature from the University of California, Irvine, where he developed a startling proclivity for anything having to do with the 19th century.

Seeking to tackle allegations of mid-stream price-manipulation and speed up physical deliveries, on Thursday the London Metal Exchange officially notified its members of significant changes to the rules at storage depots.
The changes were originally expected to pertain to depots where waiting times were in excess of 100 days but today’s notice, sent via email, indicated that the LME would be clamping down much harder, and would be looking at depots where the wait for delivery exceeded 50 days. The notice also indicated that the world’s largest industrial metals bazaar would conduct a bi-yearly survey of its warehouse network.

The latter part of the changes will take the form of a “Physical Market Committee” that will be charged with reviewing warehousing logistics for the LME’s over 700 depots worldwide. To deal with the immediate problem of waiting times, depots whose waiting times exceed 50 days will be forced to ship out 1,500 more tons of metal than what they have taken in on a daily basis.

Today’s announced measures come as a result of metals consumers such as CocaCola (K) who complained earlier in the year of lengthy waits for delivery of aluminum that were greatly inflating costs. A New York Times report from late July bolstered these complaints with revelations that Goldman Sachs (GS) was using its ownership of aluminum storage facilities in Chicago, Illinois, to slow down the delivery process in order to deliberately increase costs. The bank was subpoenaed by the Commodity Futures Trading Commission over the allegations in August.

Goldman has denied the claims made against it, and has responded to the LME’s new measures by saying that they would lead to both more price volatility on the market, as well as more metal being stored outside of the exchange’s network.