Metals producers are set to benefit at the expense of consumers as the London Metal Exchange considers altering rules for withdrawals from warehouse inventories, the European Steel Association said.
The proposed link between withdrawals and the amount of metal taken in by warehouses will fail to eliminate choke points in supply, lengthy waits for deliveries from stockpiles and increased premiums, Brussels-based Eurofer, as the group is known, said today in a statement. That will lead to higher costs, it said, raising “serious concerns” about the plan.
The new rules will take effect April 1 if they’re approved this month by the LME’s board. The proposal would oblige LME-monitored warehouses where withdrawals take more than 100 days to deliver out more metal than they accept. United Co. Rusal, the biggest aluminum producer, urged the LME last month to delay the changes, saying they risk further market distortion.
The plan is “a first but insufficient step for solving the systemic flaws of the LME warehousing system,” Gordon Moffat, Eurofer’s director general, said in the statement. The group represents companies including Luxembourg-based ArcelorMittal, the world’s biggest steelmaker, and ThyssenKrupp AG, the German industry leader.
LME metals inventories include 1.01 million metric tons of zinc, daily exchange data showed. Galvanizing, or coating steel with the metal to protect from corrosion, accounts for half of demand, according to the International Zinc Association.
The LME will refrain from commenting on the proposal until the board meets, spokeswoman Miriam Heywood said Oct. 1. Eurofer submitted its views to the exchange on Sept. 30, the final day for market participants to file comments, according to the statement.
The so-called load-in, load-out plan is based on arbitrary reasons and will have only a limited effect on the market in the “short to medium term,” the association said. It will benefit producers and “non-physical users” of metals such as zinc, rather than physical consumers, said Eurofer.
The group urged a reassessment of the proposal based on market conditions, physical users’ metal requirements and “specificities” of warehouse sites.
Eurofer said in April the LME’s current delivery rules were creating shortages and raising prices for consumers at a time of abundant supply. Consumers might wait as long as 400 days to withdraw warehoused zinc, the group said then.
Warehouses in the Belgian city of Antwerp hold about 73 percent of European zinc stockpiles tracked by the LME, according to daily exchange data. As much as 60 percent of the global LME inventory may be locked up in so-called financing transactions and unavailable to users, Societe Generale SA estimated in July. Limited supply of zinc fueled gains in premiums added to LME prices, which are now the highest since November, according to Metal Bulletin data.
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