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New LME Warehouse Rules May Help Limit Metal Premium Spikes

The proposed additional delivery requirement at warehouses monitored by the London Metal Exchange should help limit the potential for spikes in metal premiums caused by long wait times at some locations, according to Barclays Plc.

The LME said last week minimum delivery rates from warehouses may increase by 500 metric tons for storage companies in locations where at least 30,000 tons of one metal awaits delivery. Long wait times in places such as Detroit and Vlissingen have helped limit supply, taking aluminum surcharges to record highs. Withdrawals can take as long as 59 weeks in Detroit, the biggest LME repository of aluminum, where a total of 817,550 tons of the lightweight metal, 40,625 tons of lead and 10,100 tons of zinc await delivery.

The new rules will effectively separate the “non-dominant” queue from a wait line for the “dominant metal” such as aluminum or zinc, Barclays analyst Gayle Berry said in a report e-mailed today. “This may help limit the potential for queue-induced spikes in physical premiums in other metals such as those witnessed in aluminum,” she said.

The extra delivery requirement, which is expected to come into effect from April 1, will address the issue of long aluminum wait times slowing down the delivery of other metals, LME Chief Executive Officer Martin Abbott said. Current minimum delivery rates require the daily release of at least 3,000 tons of any metal from stocks exceeding 900,000 tons at a single location. A separate requirement for delivery of nickel and tin will be introduced in April.

“Any increase in the load-out rate for non-dominant metals will go some way towards addressing the spill-over effect of long, mainly aluminum, queues on other metals,” Berry said. “However, it does not tackle the issue of long queues for aluminum or zinc.”

The premium added to the immediate-delivery aluminum price was at a record $280 to $295 a ton at warehouses in Rotterdam, including a duty into the European Union, Platts, a unit of McGraw-Hill Cos, said Nov. 9. The fee in the U.S. reached a record 11.15 cents a pound in October, according to Platts. The LME has a network of more than 600 warehouses in locations from Singapore to the U.S.

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