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LME consults on enhancements to physical delivery network

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The London Metal Exchange (LME) has launched two market-wide consultations concerning enhancements to its physical delivery network and to the LME Warehouse Agreement.

“We are pleased to be able to issue these two consultations following our recent success in the judicial review appeal. We are committed to providing an optimal physical delivery network for all our users and we encourage market participants to share their views,” says Matthew Chamberlain, LME head of business development.
Following a logistical review carried out by an independent consultancy, Oliver Wyman, the LME proposes to make a number of amendments to its policy governing the approval and operation of warehouses. These changes will include, for example, increased clarity and detail around charging schedules and load-out requirements.
The LME also proposes rule changes to its policy for the approval of locations as delivery points in order to better represent the nature of the modern logistics and shipping industry. These changes include more detailed requirements regarding working practices and warehouse facilities, as well as more comprehensive criteria concerning logistical connections and support services.
In response to market concerns regarding the LME aluminium alloy contracts, which have been affected by the existence of queues in primary aluminium, the LME proposes to introduce additional load-out requirements for LME Aluminium Alloy and LME NASAAC. Warehouses will be required to load out an additional 500 tonnes of alloys per day, which the LME believes will result in greater price convergence for the alloy contracts.
To support the launch of its aluminium premium contract in Q2 2015, the LME has also put forward a new rule to ensure that warrants delivered against the contract are readily available and not subject to long wait times, should new queues arise. The LME proposes to introduce measures to limit any queues that do arise to 34 business days, which the LME believes is broadly in line with the average sourcing horizon for consumers requiring access to metal on the LME cash market.
The two remaining elements of the warehouse reform package, the re-assessment of the possibility of capping or banning rents in queues and of capping the level of daily rents and FOTs will not be addressed during this consultation. Given the relevance of these elements to the ongoing proceedings brought by Rusal, the LME cannot address them further at this time.
Market participants are invited to submit their views on the proposals during the consultation period, which runs from 7 November to 9 February 2015. The LME aims to publish its conclusions by mid-March 2015, with any resulting new rules coming into effect around mid-June 2015.
The LME is also proposing enhancements to the LME Warehouse Agreement following an external legal review. These include provisions to enhance the LME’s powers of investigation and enforcement with regard to warehouse companies in breach of the rules. A separate three-month consultation with warehouse companies runs from 7 November 2014 to 9 February 2015.

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