Lme Seeking More Warehouses In Asia

Clearly, the Asian markets are today under-represented in our warehouse network, a gap we are keen to remedy, Raj Bagri, LME chairman, told the Australian Metals Conference here.

We do however, have to pay full regard to the ease and costs of putting metal on warrant and taking it out of warehouse without any hinderance, he said. The LME sanctions about 380 warehouses worldwide, the majority in Europe.

Legal and fiscal regulations also have to be scrutinised when sanctioning new warehouses, Bagri said.

We may not always move as rapidly as some may wish, but our experience emphasises the need to move carefully to ensure that the credibility of our global warehousing system is fully maintained, Bagri said.

 

Delivery of LME contracts in the form of warrants, or documents, entitle the holder to take possession of metal stored in LME warehouses.

However, LME figures show that in fact only about five per cent of the metal contracts are actually delivered.

Most contracts are hedging vehicles, bought or sold back before falling due.

Forecasts for growth in the production of metals in Asia mean the LME will need to register new brands as acceptable to its warehouses.

Establishment of new copper smelters in Indonesia, Thailand and India, coupled with growth in production of other metals in the region will mean the need for registration of many new brands, Bagri said.

LME warehouses in Asia are currently restricted to six locations in Japan and one in Singapore.

Earlier yesterday, the managing director of lead and zinc producer Pasminco Ltd, David Stewart, told the conference he favored removal of LME warehouses.

Frankly, Im not in favor of the LME providing warehousing at all, Stewart said.

The running of warehouses by the LME was incompatible with its principal role as a futures market, he said.

Bagri maintained that the LME was more a forward market than a futures`market.

Stewart also called for the LME to report stocks daily rather than twice-weekly. He also questioned the reasons for the LME rejecting electronic trading in favor of the long-established open outcry system.

Most exchanges around the world have moved away from open ring trading to electronic trading, yet this appears to be resisted by the LME, Stewart said.

However, Bagri said the LME believed that open outcry across the ring was the most transparent and effective means of determining settlement prices.