London 26/11/2015 - The queue to take delivery of metal in Vlissingen has fallen to 12 months - or 380 calendar days - when taken into account the new increased load-out rates (LORI) adopted by the London Metal Exchange (LME) this week.
Under LORI, which will come into effect on March 1 next year, all warehouses with more than 150,000 tonnes of metal in one location will be subject to daily load-out requirements, as opposed to those with 300,000 tonnes or more currently.
And warehouses with more than 900,000 tonnes of metal - currently, only Pacorini in Vlissingen is affected - will have to deliver 4,000 tonnes per day instead of 3,000 tonnes per day.
As of November 26 , total stocks in Vlissingen stand at 1,391,707 tonnes - the bulk of which is aluminium - of which 893,756 tonnes is cancelled for removal.
Prior to LORI, the waiting time for aluminium from Pacorini in Vlissingen was 16 months, according to FastMarkets' calculations.
Alongside LORI, the exchange said yesterday that it would introduce queue-based rent caps (QBRC) and anti-abuse measures from May 1 next year to discourage LME-listed warehouses from creating queues in the future.
Yet in the short term, queues have actually increased, as predicted by some warehouse owners back in September. They then claimed that the QBRC convoluted process was open to abuse and that large volumes of material would start being cancelled at queue locations such as Vlissingen by stock owners seeking rent-free storage.
Indeed, the queue at Vlissingen nearly doubled after around half a million tonnes of aluminium were cancelled over a seven-day period from the end of October. This sent the queue from a four-year low of 224 days to a waiting time of 480 calendar days in early November.
According to FastMarkets calculations, Pacorini could still have around 400,000 tonnes of metal in the queue and subject to rent discounts when QBRC takes effect around June 1 - although the LME's anti-abusive measures mean that not all the tonnage would qualify for half-rent or free rent at the same time.
The exact tonnage subject to QBRC and anti-abusive rules will depend on Pacorini's actual load-out rates and the delivery schedule agreed with metal owners -the details of the so-called deemed cancellation dates allocated to each owner of metal in queue is not publically available.
The LME acknowledged that the introduction of QBRC - or even the anticipation of its introduction - might result in the greater cancellation of metal such as what was witnessed in Vlissingen.
"[But] the short-term impact of likely increased cancellations and the potential initial queue increases do not offset the medium-term benefit to the network of the protections afforded by QBRC, particularly since QBRC itself provides a degree of relief from the effects of any queues which may be thus created," it said in a release on Wednesday.
Global LME-listed aluminium stocks have now dropped below three million tonnes to their lowest since February 2009 as metal has been moving into cheaper off-warrant storage. At the start of the year there were more than four million tonnes of stocks in LME-listed sheds and more than five million tonnes in 2014.
(Editing by Perrine Faye)