LME may set up local warehouses

The London Metal Exchange (LME) is considering granting recognition to warehouses in the country on the back of rapidly growing domestic consumption of metals.

"We approve warehouses in major consumption areas and, therefore, it makes sense to have warehouses in India, mainly looking at its growing GDP and rising potential for metal consumption," said Simon J N Heale, former chief executive of LME, on Monday on the sidelines of a seminar on non-ferrous metals here. The seminar was organised by the Multi Commodity Exchange (MCX).

He, however, denied any plans to set up warehouses in the near future, owing to lack of proposals. "No talks are going on at present," he clarified.

The Union government needs to provide adequate facilities, including tax relaxations, smooth way-in and way-out of metals and other commodities, Simon added.

An LME-approved warehouse in the vicinity is especially advantageous when metal prices start falling. In such cases, it becomes easy for traders to deposit their stocks in warehouses without wasting much time and money in transporting the stocks.

There are over 400-LME approved warehouses in some 32 locations, covering the USA, Europe, the Middle East and the Far East. For India, the closest warehouse exists in Singapore, where traders cannot take their stocks overnight.

Speaking on the possibility of launching steel futures, Simon said Platt, a global agency, has been engaged for collecting prices of about 200-odd varieties of steel. The LME is set to launch two grades of steel, first of which would be flagged off by the end of the current year. The grade and size would be decided later, Simon said.

At the LME, less than 1 per cent of metal traded are meant for delivery and, hence, warehouses are advised for delivery only on specific cases.

Meanwhile, the LME is ready to launch its mini-size (5 tonne), electronically-traded contracts on November 20. These contracts will be settled in cash and not meant for delivery.

The contract is designed for European traders and the mini-size contracts on MCX would not be affected at all, Simon added.

When quizzed about the upgrade of its traditional open outcry trading system to online, Simon replied, "Price as long as it is discovered in an orderly manner is a price."

The commodities trade worldwide has entered a new era, where hedge funds and pension funds are playing a major role.