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<A HREF= HTTP://WWW.REUTERS.COM/ARTICLE/2014/11/08/LME-WAREHOUSE-IDUSL6N0SX4S720141108 ' TARGET='_BLANK'> REUTERS </A>

LME to further tighten warehouse rules, starts consultation

3MINS READ
The London Metal Exchange (LME) on Friday launched consultations on proposed changes to rules governing physical delivery and its global network of storage warehouses.

The LME, which recently won a major court battle about new rules to cut delivery backlogs at warehouses, plans even tougher rules to support a new contract on aluminium premiums, it said in a statement.

Last month, the 137-year old exchange said it would implement reforms on Feb. 1 aimed at easing huge backlogs to withdraw metal from its global warehousing network.

The LME, the world's oldest and biggest market for industrial metals which is now owned by Hong Kong Exchanges and Clearing Ltd, oversees warehouses where companies that buy metals on its futures market can take delivery of quality-assured supplies if needed.

But industrial buyers of aluminium, used in transport and to make beverage cans, have had to wait up to two years to get delivery of metal from some LME warehouses.

The rules the exchange proposed last month aim to cut the queues on all metals down to a maximum of 50 days. For aluminium, however, the LME said it proposed new measures on Friday that would effectively limit any queues to 34 business days at warehouses signed up to store metal for the LME's new aluminium premium contract.

"We are committed to providing an optimal physical delivery network for all our users, and we encourage market participants to share their views," Matthew Chamberlain, LME head of business development, said.

It also plans to require warehouses to deliver out an additional 500 tonnes of aluminium alloys per day.

THE LONG QUEUES

Big banks and traders that own warehouses and charge rent have profited from letting long queues build up. Some also keep huge stocks of aluminium tied up, unavailable to manufacturers, in long-term financing deals.

One issue discussed in the court case was whether the LME should have considered capping or banning warehouse rents on metal stuck in queues.

The LME said after it won the court ruling that this would be reviewed. On Friday, the exchange said it was not yet able to address this issue due to ongoing legal proceedings.

Russian aluminium giant Rusal lost the court case in October but has said it plans to appeal to the UK Supreme Court.

The exchange also said it planned to release a wide-ranging warehousing logistical and legal review that it had commissioned.

"The LME proposes to make a number of amendments to its policy governing the approval and operation of warehouses," it said in the statement.

The consultation will last until Feb. 7.

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