Who Profited from the LME Metals Warehousing Racket (RIO)

Over the months that we have been posting on the copper and aluminum games at LME-approved warehouses an argument that has come up is "Only 5% of all metals transactions go through the LME system".

The 5% figure raises a classic ignorance/apathy (I don't know/I don't care) decision but the point being missed by those raising this argumentum is that for the balance of the world's trade in metals the LME price is at minimum a reference point from which all other prices are derived, usually by some discount or premium formula.

Here's an example from FT Alphaville last week:
Boron Group Metals pricing update

Rio Tinto’s problems with its aluminium business are well documented.

But things could have been worse without all that warehousing shenanigans from Goldman et al.

From Thursday’s half year results.

Rio Tinto Alcan’s underlying earnings of $123 million were $99 million higher than 2012 first half despite an eight per cent decline in LME prices period on period and the heavy rainfall of extropical Cyclone Oswald that passed over Queensland. Increased volumes, a rise in market premia and productivity improvements were the main drivers of the first half momentum.

Market premia on aluminium shipments have continued to perform strongly over the first half of 2013. This has been supported by a balanced physical supply/demand picture despite significant LME inventories, much of which remains tied up in financing deals due to higher forward prices and low interest rates.

The 2013 first half cash LME aluminium price averaged $1,919 per tonne, a decrease of eight per cent on 2012 first half. A significant portion of aluminium inventories remain locked in financing deals and so unavailable for physical delivery. As a result, regional premia for physical delivery of aluminium remained at record levels and, on average, higher than in 2012 first half.

Interesting eh? And for Rio somewhat concerning.

If new LME’s proposals to tackle the warehouse queues work that could mean an end for record physical premia — and the uptick in profitability at Rio Tinto Alcan....MUCH MORE

I know, your probably thinking "Bore on, dude".
And not using 'bore' in the mining sense.

To that all I could say is in August 8ths "The Future Price Trajectory of Copper and Aluminum and the Implications for Oil":

The price action to look for is: first up (although some of that has already occurred), and then, a picture even a four-year-old can understand: