LME overcomes legal battle but needs a stronger strategy

LME has faced a lot of criticism as well as a lawsuit for its dysfunctional physical delivery systems, especially from the largest aluminium producer, Rusal. Although LME has narrowly escaped any consequence, it has to rectify its faulty warehousing system for a smoother functioning aluminium industry globally.

In February 2015, LME will be implementing its proposed solution named LILO. Although it has faced a delay of 10 months considering its earlier deadline of April 2014, LILO is expected to ease out warehouse operations and warehouses are already changing their operating models to comply with the rules.

As per the new LILO regulation, if a warehouse has a queue for load-out that is longer than 50-calender days and continues to load-in new supplies, it is required to lift its load-out rates over then next three months keeping in line with the preset formula. This will prevent warehouses from hoarding which hurts the entire industry as a whole.

However, the LILO campaign is not foolproof as it cannot do anything about the stocks that are already present, prior to implementation. When the status of the stocks change and are placed back on warrant, they will result in longer queues.

Even though LME has escaped the legal battle for now, LME might need to take bolder steps to make sure that the one-two year queues do not keep occurring to escape such accusations in future.