“We are confident that our warehouses reflect the underlying elasticity of supply,” Matthew Chamberlain told delegates of the LME Asia Metals Seminar in Hong Kong on Thursday May 17.
“There is no target level for stocks. All we want is a network that reflects real-world buying and selling, and that the metal is there when we need it,” Chamberlain added.
The exchange came under fire following its warehousing reform – which saw the implementation of the Load-In/Load-Out policy in 2013 and queue-based rent capping rules in 2015.
Both fulfilled their duty of removing structural queues at LME warehouses, but in turn stocks at LME-listed warehouses have fallen significantly in recent years.
“Stocks peaked in 2012/13 but we took definitive action to solve problems with the warehouses which meant stocks fell as a result,” Chamberlain said.
“People were worried. They questioned: ‘Did we break our warehousing network?’ – but we, the LME, do not believe we did that,” he said.
Chamberlain noted that stocks at LME warehouses had begun to rebound in the first few months of this year – although have fallen in recent weeks due to recent developments, with aluminium stocks being sucked up to meet global demand.
“We continue to work extremely hard with our warehousing network and through our warehousing committee are always working to make things better,” Chamberlain added.
Pleased with Rusal reaction
Following the announcement on April 6 that US Department of the Treasury had sanctioned and frozen the assets of Oleg Deripaska and Russian aluminium producer UC Rusal, the LME reacted quickly by introducing a “conditional temporary suspension” on placing Rusal metal on-warrant in its warehouses.
The exchange stated that the suspension is in place unless “the metal owner can demonstrate to the satisfaction of the LME that it will not constitute a breach of the sanctions.” The suspension is still in effect – and remains so until further notice.
“Aluminium has certainly been complex, and the biggest danger with any sanction or tariff is uncertainty,” Chamberlain said.
“But the LME acted quickly and decisively and we are pleased to see the global industry followed by accepting LME warehouse-approved metal to be used in the industry,” he added.
The London Metal Exchange believes its warehousing system is robust and remains committed to working with members to make warehousing easier, according to the exchange’s chief executive officer (CEO).