London Metal Exchange Starts Talks Over Warehouse Rent Rates

  • Capping charges identified as measure to reduce fees
  • Little incentive to keep metal in warehouses: Citigroup

The London Metal Exchange issued a discussion paper about rate reforms at its listed warehouses, saying a cap on charges may be one way to reduce fees.

The move seeks to address concerns that customers are treated unfairly on warehouse rents, the LME said in a notice to members Wednesday. The exchange cited differences between listed warehouse charges and the real cost of delivering and storing metal as a reason to reassess its pricing.

“LME rental rates have drifted far out of line with non-LME charges, which suggests something needs to be done,” David Wilson, an analyst at Citigroup Inc. in London, said by phone from London. “With rates as high as they are, there is very little incentive to keep metal in listed warehouses, and that could become an issue for the exchange.”

The LME’s notice to members follows its earlier directive asking warehouses to resubmit rates after increases in a December schedule were deemed too high. It previously acted on consumer complaints and lawmaker scrutiny by speeding up the delivery of metal from warehouses.

The LME is seeking to lower costs “given high levels of rent and other charges,” it said by e-mail. “Today’s discussion paper outlines our options in respect of possible solutions.”

Before it's here, it's on the Bloomberg Terminal.