London Metal Exchange aims to double cuts to warehouse logjams

The London Metal Exchange (LME) announced new rules and proposals on Monday aimed at slashing delivery backlogs at its global network of warehouses twice as quickly as under current reforms.

The move is part of a wide-ranging reform drive sparked by consumer complaints about long delays to obtain aluminium from storage and lawsuits accusing banks and commodity companies of conspiring to restrict supply through the warehouse network.

The LME, the world's oldest and biggest market for industrial metals, also said in a statement it planned to launch new contracts for aluminium premiums and ferrous products on Oct. 26.

The LME launched consultations last November on a second layer of rules governing physical delivery and on Monday it requested even more feedback on further measures.

The exchange asked members for their opinion on proposals that would force warehouses to reduce queues faster.

The 137-year old LME won a major court battle in October, giving it the green light to implement its initial set of regulations on Feb. 1 aimed at cutting delivery queues to a maximum of 50 days from up to two years at some depots.

On Monday it said was now responding to complaints that under the current reform it may take as long as four years to cut backlogs at the worst affected site -- the Dutch port of Vlissingen.

Under the new tougher rules, it would take a maximum of 2.3 years to reduce queues to 50 days, Matt Chamberlain, LME head of business development, told a news conference.

The exchange, owned by Hong Kong Exchanges and Clearing Ltd , also set a firm October date for the launch of three new contracts: aluminium premiums, steel scrap and steel rebar.

The aluminium premium contract, which allows people to hedge additional surcharges for buying metal for immediate delivery, has been delayed from a second quarter launch.

This was because the LME first wanted to conclude any further warehouse reforms, which could have had an impact on premiums, Chamberlain said.

The exchange also released a discussion paper on the possibility of capping or banning rents in queues.

Buyers of metals have complained about having to pay high rent during the months that metals were stuck in backlogs waiting to be delivered from warehouses.

Previously the LME has rejected the idea of setting rent levels at warehouses, saying it had legal advice that it might fall foul of competition law.

The exchange published a detailed set of new rules on Monday to take effect on June 1, one of which will require warehouse firms to report anonymously incentives paid to metal owners so it can determine whether those payments were market distorting.