LME warehouse owners raise rents for aluminium as queues decline

Reuters

London

Warehouses registered by the LME will raise average rental rates for aluminium by 3.6% in 2015, partly offsetting the impact of falling load-out queues.

Owners of London Metal Exchange warehouses had managed to hugely inflate rental revenues by letting queues swell for buyers of LME futures contracts to withdraw metal from their sheds, in some locations to more than a year.

But in an attempt to remedy that, the LME last year announced plans to reform the system that included linking load-in to load-out rates and cutting maximum warehouse queues to 50 days.

The planned changes have already reduced queues even before they come into effect next year, cutting rental revenues for warehouse owners, including global trade houses.

Much higher rents could have offset the impact of the reforms, but previous hikes helped prompt legal action by industrial users of the LME, pressure from the LME itself, and scrutiny by regulators.

As a result, warehouse owners will from April 1 next year raise average rental charges by 3.5% - weighted according to the size of their stocks - a similar level to last year’s 3% average increase, according to an LME members notice.

In 2012, the average rental increase was 7%.

Stock-weighted average rents for aluminium, the most widely backlogged metal, will rise by 3.6% from April 1, the LME told Reuters via email, the same as the increase for the current period.

The wait to remove aluminium from LME-registered sheds in Vlissingen, one of the storage locations with the longest queues, fell last month from 637 to 555 days, still well over a year but moving down.

Most of the Vlissingen warehouses are owned by Pacorini Metals, a subsidiary of commodity trader and miner Glencore Xstrata.

Rent levels decided by warehouse firms vary by metal and location.

Warehouse companies set their rents annually and independently of each other and the LME cannot force changes in the levels they charge.

Last year however, the exchange and Britain’s Financial Conduct Authority held talks with warehouse companies asking them to be prudent, though stopping short of threatening legal action.