The London Metal Exchange said it can’t afford a short-term view on waiting times at its warehouses as Hong Kong Exchanges & Clearing Ltd., which is buying the bourse, said it’s focused on the issue.
The LME changed its rules in April to increase the minimum amount of metal that must be delivered daily, after getting complaints about delays since at least 2009. The debate is “complicated,” Chief Executive Officer Martin Abbott said at a dinner in London today, according to an e-mailed copy of his speech.
Shareholders in the 135-year-old LME approved a $2.2 billion takeover by Hong Kong Exchanges in July. Withdrawing aluminum can take as long as 57 weeks at the Dutch port of Vlissingen and 41 weeks in Detroit, data compiled by Bloomberg show. Reports on LME delivery issues are “deeply concerning,” Hong Kong Exchanges Chief Executive Officer Charles Li said yesterday, adding he’ll study the results of the LME’s review on the matter and consult members before making changes.
“We have a situation that is created by the economics of the aluminum industry and we are keen to mitigate its impact on other markets,” Abbott said at the dinner. “We cannot afford to take a short-term view, and that is especially so given that the situation in which we find ourselves is the result of long- term factors.”
Aluminum stockpiles, at 5.07 million metric tons, account for 71 percent of the metal stored in LME warehouses, according to bourse data. The exchange will in April introduce new daily levels for the minimum amount of nickel and tin that warehouses must deliver, the bourse said in August. The move comes amid concerns that long wait times may limit availability.
“We need to understand whether or not we’re really talking about people waiting for a year,” Li said yesterday at an LME metals seminar in London. “If somehow the LME system is making the real economy suffer on that basis in that way, that’s unacceptable.”
The dinner is during LME week, an annual event that attracts thousands of miners, refiners and traders for talks on metals markets and supply contracts. Hong Kong Exchanges is expected to complete the purchase in the fourth quarter and will help the world’s biggest metals bourse to expand in Asia, Abbott said yesterday.
Hong Kong Exchanges agreed to maintain the LME’s contract structure and open-outcry trading, as well as to keep the existing warehousing network, help the London bourse develop its own clearinghouse and freeze trading fees until at least the start of 2015.
Abbott said in June that the exchange’s clearinghouse will be completed in the first quarter of 2014. That will “deliver strategic benefits as well as increasing user efficiency,” he said at today’s dinner. The LME is preparing plans to build a trade repository in parallel with the clearinghouse, he said.
The LME has more than 600 registered warehouses in locations from Singapore to the U.S. that ensure physical delivery against futures. The exchange’s network doesn’t include any in China. Warehouse companies such as Glencore International Plc (GLEN)’s Pacorini Metals, Goldman Sachs Group Inc.’s Metro International Trade Services LLC, and JPMorgan & Chase Co.’s Henry Bath LLC are approved to store metals.
Being owned by Hong Kong Exchanges “means there will be the potential for renminbi-denominated products, for efficient global clearing solutions and for even closer working relations with mainland China,” Abbott said. “It does not mean that we will lose our focus on the rest of the world. The great strength of the LME is its ability to act as the global metals marketplace and we will continue to be just as attentive in our non-Asian markets as we have always been.”
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