London Metal Exchange is planning to allow long queues for loading out metal in warehouses. Metal industry analysts believe this will boost profits for LME warehouses by holding metal for longer, but consumers will pay higher costs for metal. Consumers have opposed the change in rules. LME introduced the current rules to prevent long queues to take aluminium out of LME-registered warehouses in Vlissingen and Detroit, which soared to two years and to 700 days respectively in 2014.
The rule allowed full rent payable for 30 days, half rent for 20 days and no rent after 50 days. LME has proposed to change that to full rent till 80 days and no rent thereafter. Under such circumstance, warehouses could pay metal owners larger incentives to put metal on LME warrant instead of offering it to the physical market for sale with premiums. Consumers buy metal on contracts priced which adds the physical market premium over LME benchmark price. The consultation period for the change in the regulations has ended ends officially on Thursday.
Warehouse owners pay incentives on per tonne of metal and are calculated using free-on-truck (FOT) rates. For aluminium, the average FOT is around US$50 a tonne and warehouse rent is at around 54 U.S. cents a tonne.
Premiums for aluminium early in 2015 rose above US$500 a tonne in the United States before the introduction of LME’s new warehousing rules and it brought it down to US$130 a tonne in Sept. 2016.
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