LME warehousing; overdue reform or regulatory overreach?
Overhaul of warehousing system is designed to curb bad behaviour that lax rule-book facilitated
What to make of last week's mass cancellations of zinc at London Metal Exchange (LME) warehouses in New Orleans?
Last week's Wednesday LME stocks report showed 91,400 tonnes of metal moving to the physical departure lounge at the US port.
A similar round of heavy cancellations in late December created a "flash" load-out queue for zinc at New Orleans. Even after 53,375 tonnes of draws over the course of January, the queue still stretched to 48 days at the end of the month. It has just got a whole lot longer.
Zinc bulls would love to believe that this huge tonnage of metal is going to fill a hole in the physical market, a sign of supply deficit and a herald of higher prices.
Just about everyone else is a little sceptical. New Orleans has a recent history of this sort of headline-grabbing change in stocks, only for material to flow back onto LME warrant a couple of months later.
The fact that Pacorini, the warehousing arm of physical trading giant Glencore, dominates LME warehousing in New Orleans, only serves to feed the suspicion that things may not be quite what they seem.
We'd all like to know a bit more, but once metal leaves the LME system, it disappears into the statistical night, where only the owner of the metal and the warehouse operator know what's really going on.The LME itself would like to know more too. And if it gets its way, it soon will.