People familiar with the situation said that the warehousing firm had been found to have acted vigorously and without delay in its dealings with Glencore at its warehouses in Port Klang, Malaysia, following large cancellations of aluminium by the trader-miner.
Glencore had complained to the LME that Istim slowed down the various customs and other application processes to slow deliveries out. It also argued that even if the exchange did not find that Istim had deliberately slowed anything down, what really mattered was that Glencore had been given a delivery-out slot at the end of January, and not February 1, when the LILO rule was activated.
Not so, said the LME in preliminary findings to the parties a few weeks ago and - after offering Glencore the opportunity to respond - once again this week.
Both Glencore and Istim declined to comment.
At the heart of the LME decision is a reaffirmation of that procedural process that warehouses and warrant owners undertake once metal is canceled.
When a warrant is canceled, its owner is not entitled to have the material delivered out that day – it just means that the cancellation process has begun. As the LME notes in a notice to the market issued earlier on Monday May 20, there are multiple requisite formalities to prepare and schedule metal for delivery that need to be fulfilled by all warehouses and warrant owners before any deliveries can take place.
“It is the LME’s view that just as it is not possible in practice for a warehouse to load-out metal instantaneously upon the receipt of a cancellation request, nor is possible to do so immediately upon the completion by the metal owner of all the requisite formalities required from the metal owner to enable load-out,” the LME said in its notice on LILO.
“This is because, before metal can be loaded onto the relevant vehicle for load-out, the necessary next step after the completion of all the requisite formalities to enable load-out is for the warehouse to complete the practical steps to prepare the canceled metal for load-out, including locating, retrieving and staging the requested metal for delivery, known as the preparation process.”
In other words, the cancellation process begins with a confirmation by the warehouse of the cancellation and is followed by a series of steps including a payment invoice, a request for detailed shipping instructions and the completion of all relevant customs documents.
Only once all of this is finished does the warehouse have to offer the first available appointment slot for deliveries, based on its existing queue and availability, with a 48-hour window to prepare and stage loads for shipments.
The various stages until the 48-hour countdown clock begins usually take days, especially when large tonnages of metal are being canceled. Everything will be timestamped, allowing for an easier way to check that warehouses are following the rules.
In Istim’s case, there was no evidence that it had deliberately slowed up the various stages in the cancellation process, nor that it could have offered appointment slots for the canceled metal before February 1, as Glencore had alleged the warehouse firm could.
If there was any prior ambiguity over what constituted a cancellation, the LME has now resolved that.
The London Metal Exchange has decided on a dispute over when the load-in, load-out (LILO) rule should have been activated, ruling in favor of warehouse company Istim.