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Metal Bulletin subscribers are invited to ask Holman Fenwick Willan LLP a legal question (subject to HFW terms and conditions*) on, for example, a suggested clause for a metals contract or an issue under a metal/ore charterparty. Email Alex Harrison at AHarrison@metalbulletin.com if you would like your question to appear and be answered on the MB website.
Q: I have run my LME long position to expiry and taken receipt of warrants for material my foundry needs for its production.
The warehouse company says that I cannot take possession of my material for ten months because of the long queue of material ahead of mine.
I was using the LME as the market of last resort and want to know what rights I have to claim my metal sooner than that?
A: The issue of warehouse queues is a topical one, with significant delays being experienced in a number of places – most notably Detroit.
The difficulty market participants face is that it appears that material is being loaded out of the warehouses at the minimum rates permitted under LME rules.
Warehouse owners are not in breach of the LME rules if they are loading out at minimum rates despite the concerns that the link between LME and physical market prices and the LME’s status as a market of last resort are being undermined by such lengthy delays.
The LME has recognised the issue and has recently considered a number of proposals, largely based on a report from Europe Economics. Unless or until the minimum loadout rates are increased significantly, market participants will be forced to queue in order to take delivery.
In the absence of either LME rule changes and/or the involvement of organisations such as the Office of Fair Trading, this situation will not change.
The only practical advice of general application that can be offered to market participants at this juncture is to encourage participants to have further dialogue with the LME or the regulators.
Of course, individual circumstances may mean that the holder of a warrant has remedies separate from the rights under the warrant.
In the event that it is thought that such individual circumstances might apply, or generally if you would like any further information about this, or other topics, please do not hesitate to contact one of the following members of the HFW metals team:
Brian Perrott, partner, at brian.perrott@hfw.com Andrew Ridings, partner, at andrew.ridings@hfw.com
Luke Zadkovich, associate, at luke.zadkovich@hfw.com
Alice Paterson, associate, at alice.paterson@hfw.com
*http://www.hfw.com/standard-terms-conditions