The London Metal Exchange (LME) has announced its intention to introduce caps on maximum rates charged by LME-registered warehouses following a market-wide consultation.
This is the final part of the three-year-long warehouse reform programme designed to enhance the LME’s warehouse network and to ensure that it fully serves the requirements of the global metals market.
“We would like to thank all those who took part in discussions and consultations over the last three years, which have been invaluable in ensuring that we took the most informed and balanced action in refining our physical delivery network,” said Garry Jones, LME Chief Executive.
“The LME has a duty to the entire metals community to run a fair and orderly market and the action we have taken over the last three years has strengthened our ability to carry out this responsibility.”
As the final part of the reforms programme, the LME will introduce an initial schedule of maximum rates for warehouse rents and free-on-truck (FOT) charges by calculating the average of the highest published charges for the years 2015-16 and 2016-17, on a per-metal and per-country basis. This schedule of charge caps will be frozen for five years, during which time “real-world” prices are expected to converge closer to the frozen published rates. After that, the maximum prices will be updated annually based on the per-country consumer price index.
“Having considered all of the consultation responses carefully, we are confident that the implementation of the charge-capping proposal is the simplest solution to address concerns over headline rates charged by warehouse companies, and, most importantly, it will bring greater stability to the market,” said Matthew Chamberlain, LME Head of Business Development.
The revised policy will take effect following the 90-day notice period required under the LME Warehouse Agreement, that is, by 28 December 2016, in time for publication of the 2017-18 charges. The first capped charges will come into effect on 1 April 2017.