LMEWEEK-Wait time in spotlight as copper users cheer LME warehouse plan

Reuters

* Copper firms Luvata, KME say LME plan shows intent toimprove system

* 100-day wait to get metal still too long - aluminiumindustry

* If approved, plan to come into effect next April

By Maytaal Angel and Susan Thomas

LONDON, Oct 4 (Reuters) - Top European copper users havebacked the London Metal Exchange's plan to reform itswarehousing system, even as a smarting aluminium industry staysfrustrated with storage practices blamed for inflating chargesto obtain material.

Warehouse companies owned by big banks and trade houses havemade money by building stocks in LME-registered warehouses andallowing queues to grow for clients seeking to withdrawmaterial, all the time charging rent.

End-users say this has caused waiting times of more than ayear to get metal out, distorting availability and inflatingphysical prices or "premiums" to record highs - especially foraluminium, which is in chronic oversupply.

In an effort to address those concerns, the LME has proposedthat as of next April, a warehouse company with wait times ofmore than 100 days in a single location must load out more metalthan it loads in, according to a formula.

"We believe with regards LME warehousing there is clearwillingness and clear intent to improve the situation so todaywe are less worried," John Peter Leesi, chief executive ofcopper products maker Luvata, told Reuters ahead of the LME Weekindustry gathering in London.

Riccardo Garre, chief executive of copper fabricator KMEGroup, the industrial unit of Italy's Intek Group SpA, said: "The proposal is at least trying to preventderegulation of the warehousing rules. It will help preventfurther deterioration."

'BEYOND THE WIT OF MAN'?

The proposal will be voted on this month, but top-levelsources say that given the unprecedented regulatory scrutiny ofwarehousing, the LME might have to consider forcing warehousesto cut wait times further.

"We look forward to improvements but one of our concerns isthat a queue of 100 days is still not acceptable," AlexJennings, chief purchasing officer at beverage can maker Rexam,said. "It shouldn't be beyond the wit of man to get metal out ofa warehouse in a shorter period (than 100 days)."

Sources familiar with the matter said from their discussionswith the LME it was likely the exchange would endorse theproposal as it is, but the LME could shorten the 100-day waittime.

"Twenty days would be good, but we think there could be acompromise at 50," a metals industry source said. "We believethis will be an ongoing process, and the proposal is just thebeginning of the changes the LME will make."

Under current LME rules, warehouse companies with more than900,000 tonnes in one location are required to load out metal ata minimum rate of just 3,000 tonnes per day, regardless of howmuch is delivered into the facility.

COPPER MARKET SATISFIED

Aluminium consumers say the rules have enabled warehouseowners including Goldman Sachs, JPMorgan,Glencore-Xstrata and trade house Trafigura to buildlucrative backlogs at their storage depots.

However, in contrast to copper consumers Luvata and KME,they do not believe the LME's plan to reduce wait times to amaximum of 100 days is far-reaching enough.

"We believe that the changes would gradually shift themarket in the right direction. However, (they) would bedifficult to administer and enforce and would take too long. Nodelivery delay is acceptable," Nick Madden, chief supply chainofficer at aluminium user Novelis, said in his latest blog.

Meanwhile, top aluminium producers such as Alcoa andRusal are openly hostile to the LME's warehouse plan,warning that it risks creating further market distortions by incentivising the storage of aluminium in non-LME warehouses.

The LME, however, has little scope to accommodate theconcerns of aluminium producers who have benefited from risingpremiums, given it is facing unprecedented political pressure toreform its warehouse rules.

The U.S. Commodity Futures Trading Commission and the U.S.Justice Department have begun preliminary probes into all LMEwarehouse companies, while the LME is also a co-defendant inprivate lawsuits filed by U.S. aluminium consumers.

Premiums are paid above the LME cash price to cover physicaldelivery costs such as transport and insurance. In the aluminiumspot market, they have risen in Europe from $145 per tonne inDecember 2011 to a record near $300 a tonne in June.

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