JPM, Goldman chased out of metal storage biz as HK-owned LME to crack down

The LME's proposed rule change takes aim at bottlenecks that slow the delivery of metal out of their sheds.

When warehouses are full, as they are now, long queues develop to move metal from one location to another. The delays have been profitable for warehouse owners because they continue to receive rent until metal actually leaves. They have tended to use the stream of revenue from the queues to offer incentives that attract more metal and maintain large stocks at just a few locations.

But the LME's new rule would prevent this practice, in effect forcing stocks at the most dominant warehouses to be drawn down and cutting into the rent paid. Other warehouse owners with large LME stockpiles, including traders Glencore and Trafigura, would also be affected.

The proposal, which is open to consultation until September, marks a step forward in the LME's effort to address the warehousing situation following its acquisition by Hong Kong Exchanges & Clearing in December. Before that, the LME was owned by banks and brokers, with JPMorgan and Goldman as the two largest shareholders.