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The London Metal Exchange plans to implement the linked load-in/load-out (LILO) warehousing rule and to move forward with “further warehousing reforms”, the bourse has said.
A new consultation, lasting two weeks, will be carried out with listed warehouse companies, beginning on Wednesday October 8, on “minor amendments” to the LILO rule.
This includes a new start date, which will mean the first calculation period will begin on February 1 next year, after a three-month notice period to warehouses.
Following the consultation, the LME will put out information on other warehousing reforms, which it has promised to discuss with the market, including reassessing the possibility of capping or banning rents in queue.
This information will also cover the possibility of capping the level of daily rents and FoT (free on truck) charges, a warehousing logistical and legal review, and rules required for premium futures contracts.
“We are pleased to be moving ahead with our planned reforms following our success in the Court of Appeal,” Garry Jones, LME ceo, said in statement.
“The LME has a duty to ensure the integrity of its reference prices and the operation of a fair and liquid market for all industry participants. The implementation of the LILO rule and related reforms will assist us in continuing to fulfil this duty,” he added.
Matthew Chamberlain, LME head of business development, added that the behaviour of warehouses with queues of metal has “altered materially” since the beginning of the original consultation in July 2013, and that there is now a net load-out of material.
“While it is true that market conditions have also improved since 2013, the market knows that a proportion of global metals production today still flows into storage,” Chamberlain said in a statement.
“Without the LILO rule, large amounts of metal could have been directed to affected warehouses, thus further lengthening queues.”
However, he said, the LME believes that the anticipation of the new rule alone has meant that rises in queue lengths have not been as significant as they might have been otherwise.
“The introduction of LILO will ensure that, over time, stocks – and eventually, queues – at the two remaining affected warehouses should fall,” Chamberlain said.
“Following the [new] consultation, the LME will publish further information regarding its other warehousing reforms, which it has committed to discuss with the market.”
The LILO rule measures all of the metal loaded into a warehouse over a three-month period; if there is a queue longer than 50 calendar days, the warehouse would be expected to deliver out further metal based on a formula.
For example, if a warehouse is already required to deliver out 3,000 tpd, under the LILO rule, it would need to load out at least 1,500 tpd more than it loads in.
Furthermore, if the load-in rate at an affected warehouse is greater than the minimum load-out rate, it would be required to deliver out material of an equal amount to the excess.
Claire Hack chack@metalbulletin.com Twitter: @clairehack_mb