Happy New Year? LME Warehouse Challenges Continue
Unfortunately, from the perspectives of supply chain security and anomalous market premiums, 2013 has begun even less favorably than last year. London Metal Exchange (LME) stocks are now at the highest level in history whilst Regional Market Premiums are too. The LME announced some adjustments to its warehouse minimum load out rates late last year but steered clear of aluminum. The consumer segment of the industry had hoped for a change in approach from the LME following its takeover by the Hong Kong Exchange (HKE) but I’m doubtful that anything will change. If you are new to this controversial matter, Jack Farchy from Financial Times helped explain the aluminum warehouse issue in 2011.
I picked up the news items below recently. The first relates to Bob Kickham of Luvata who is the first person/company that I have seen publicly protesting the situation since we started speaking out in 2011. It is coincidental that on the same day, I also picked up an article (below) by the insightful Andrea Hotter saying “put up or shut up.” One thing that I am sure will not happen this year is that consumers will “shut up!”
The London Metal Exchange’s warehousing system is still broken, despite efforts to fix delays in accessing metal, Bob Kickham, Luvata’s senior vice president of procurement, told Metal Bulletin in an interview. Luvata has tried to get metal out of LME-approved warehouses in Johor, but was told that it had to wait three months as a result of the queues.
“We can’t be in a position where we seek to get materials out of warehouses and three months later we might get it,” Bob Kickham said. Luvata was forced to use an alternative route to get metal – buying it in the market. Kickham stated that the company has made its views on warehousing known at meetings of the LME copper committee, on which it is represented. “We are big supporters of the LME in general and have a good relationship with them; that’s why we feel confident in making this statement,” He also stated, “We can’t have queues like they are at the moment – we want to be able to get material out of the warehouses in a practical time frame. We want a warehouse system that works, and at the moment it doesn’t.”
It is the best possible time for those who feel they have a gripe, against anything whatsoever related to the LME, to take action – the new exchange owner, Hong Kong Exchanges & Clearing (HKEx), is listening. HKEx ceo Charles Li says he will take a bazooka to the problem if he has proof that warehouse queues are being deliberately created. He also says that despite the industry’s negative focus on warehousing, nobody has yet articulated a problem that suggests the system is broken.
My personal challenge to the industry is to stop whining and do something about it. Man up, in other words. If you are so sure that warehouse firms are breaking LME rules, then . . . prove it. Otherwise change the record, let the warehouse firms to do what they do, and get on with your daily business.
What do you think? Leave your opinion in the comments section below.