London 23/07/2013 - The London Metal Exchange said on Tuesday that its recent proposals to boost load-out rates from registered warehouses will alleviate concerns emanating from US Senate hearings.
"The LME notes recent press coverage on its warehousing policy, which suggests the Exchange is responsible for higher prices for aluminium and a shortage of metal."
"We appreciate the continued concern in the market and the proposal on which we are currently consulting could help to alleviate the issue," the LME said in a statement.
A US Senate committee is in session, questioning witnesses about bank ownership of warehouses and oil refineries. Additionally, there have been reports that the US central bank is reviewing a 2003 precedent that allows deposit-taking banks to trade physical commodities.
The LME has proposed to reduce queues to remove metal from warehouses that stretch over 12 months in some cases, by making warehouse companies with sheds where waits exceed 100 days deliver out up to one-and-a-half times more metal than they take in. Because of these extended queues, physical premiums over and above cash prices have hit record highs
The consultation period will last until September 30, with a final decision on whether to implement the changes expected in October.
"The total price per tonne paid by consumers for aluminium has in fact fallen by almost 40 percent since July 2008. Although premiums, which are not traded on the LME, have reportedly risen to $260 per tonne from $100, the cash price for aluminium on the LME has fallen by 45 percent to $1,800 per tonne," the LME said.
"There is no reported shortage of aluminium in the market; consumers can continue to buy directly from producers as they always have done," the LME said.
Over the last three years the LME said it has introduced measures to temper warehousing queues, but it is legally restricted from capping rents and preventing trading companies from owning warehousing companies.
"The LME is a regulator of the market as well as being regulated by the FCA (Financial Conduct Authority)...The LME has continuously monitored this issue and has tried to balance the
interests of the market as a whole, through the economic cycle," it added.
(Editing by Tom Jennemann)