Wednesday, July 30, 2014

LME warehousing; all change or no change?

From Reuters India:
On the surface at least, much has changed in the London Metal Exchange (LME) warehousing business over the past year.

But take a deeper look, and it is clear that the underlying structural problems are still there. The exchange has much more work to do if it wants to rectify a delivery system that has ruptured relations with some of its users and generated a spate of lawsuits in the United States.

What the LME has done is add three new delivery locations, extending its global warehousing network to Kaohsiung in Taiwan, Moerdijk in the Netherlands and, for copper only, Panama City in the United States.
Several new operators such as Whelan Metals, BTG Pactual and Independent Commodities Logistics have joined the ranks of registered warehousers, while other smaller companies such as Erus Metals and Scale Distribution have expanded their foot-print.

The exchange will also take some satisfaction from the reduction in the number of delivery queues even though its proposed rule change linking load-in to load-out rates is itself log-jammed in the UK legal system.
Not yet revealed are the results of logistics and legal reviews of the LME's warehousing system, commissioned by the exchange. Either of them could yet prove as significant as the LME's current assault on the queue model, which had been exploited so efficiently by Metro at Detroit and Pacorini at the Dutch port of Vlissingen.

Even after this series of changes, however, the exchange's physical delivery function is still dominated by a handful of players and, more problematically, by operators tied to some of the world's most powerful trading houses.

The total number of LME-registered storage units, excluding those holding steel, contracted marginally over the last 12 months to 666 from 678, primarily due to cuts by those companies most associated with load-out queues.

In the case of Impala Terminals, previously known as NEMS before being rebranded by its owner Trafigura, the attempt to build a queue at Antwerp never really got off the ground.

A rapid build-out in capacity has gone into reverse, with the number of Impala sheds at Antwerp falling to 12 from 26 last July as it scales back its LME ambitions.

Metro, currently owned by Goldman Sachs but with a "for sale" sign on it, reduced its footprint by 12 units over the last year, extending a retreat that began two years ago.

It is trimming its presence just about everywhere apart from its core LME operations in Detroit, where it still runs 27 sheds with 1.41 million tonnes of metal in them as of the end of June.

Even Pacorini, owned by Glencore, has tempered its previous capacity surge, reducing the number of storage units in Vlissingen by 12 to 41....MORE