Warehouses that paid incentives to attract Metal and create backlogs

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The London Metal Exchange, the world’s biggest metals bourse, strengthened its powers to investigate wait times for metals at its network of licensed warehouses that customers complained drove up their costs.

The LME will have “enhanced powers” to examine wait times and to impose additional load-out requirements on warehouses that paid incentives to attract metal and create backlogs, it said in a notice to members today. A special committee will be responsible to sanction enforcement action.

The LME, which regulates more than 700 warehouses, announced in November steps to help ease backlogs at some locations after complaints from metal users. The new rules, effective April 1, will require warehouse operators with waits longer than 50 days to deliver more metal than they take in. The proposed changes are already affecting the market, it said.

Phillip Crowson, a former chief economist at Rio Tinto Group, was appointed chairman of its newly formed physical market committee. He will also head the special committee, whose members include LME Chairman Brian Bender and some board directors. The bourse will restructure the warehousing committee to include one invited representative per warehouse operator, Crowson and an independent head, the LME said.

The exchange hired Oliver Wyman & Co. to conduct a logistical review that will look into rate considerations, suitability of good delivery locations, warehouse companies and storage facilities. It also commissioned a legal review together with Addleshaw Goddard LLP. A public report on the findings of both reviews is due at the end of August.