LME Imposes New Rules for Metal Movement in Warehousing Network for 2024

The London Metal Exchange (LME) has implemented new regulations for metal movement within its warehousing network, effective from 2024. These rules aim to address a trading strategy that emerged following sanctions on Russian metals, which involved the withdrawal and re-delivery of Russian metal within the LME's warehousing system.

The new measures are designed to disrupt the economic benefits of this strategy by increasing scrutiny of 'rent share' agreements between traders and warehousing companies. The LME has also introduced a procedure to track the status of re-issued Russian warrants or Russian warrants moved between warehouses.

Under the new rules, LME-listed warehouses will be required to populate the 'Warrant Ref 2' field of LMEsword, the LME's electronic warrant and ownership transfer system, with a specific 're-issuance/movement code' (RIMO code) for any re-issued Russian warrant. Non-Russian warrants and Russian warrants that have not been re-issued or moved and re-warranted will not carry a RIMO code.

The LME has also streamlined the process for reintroducing Russian metal into its system, reducing the administrative burden for traders. Additionally, the exchange allows for the conversion of Type 2 Russian metal (ineligible for trade by UK entities) back to Type 1 (eligible), undermining the initial logic behind the trading strategy.

The implementation of these new rules follows the LME's ban on the acceptance of Russian primary aluminum produced after April 13, which led to a jump of over $200/t in the exchange price. Traders have been cancelling warrants to generate profit from rent-share agreements with warehouses, which may result in Russian metal lingering in the LME system for a long time.

Why this matters: The LME's new rules have significant implications for the global metals market and the trading of Russian metal. The measures aim to minimize market disruption and ensure a fair and transparent trading environment, but their effectiveness remains to be seen as the new rules may have unintended consequences.

The LME has acknowledged that further adjustments to the regulations may be necessary, as the new rules may have the opposite effect of what was intended. The exchange continues to monitor the situation closely and is prepared to take additional steps to maintain the integrity of its warehousing network and the broader metals market.

Key Takeaways

• LME implements new rules for metal movement in its warehousing network from 2024.
• Rules aim to disrupt trading strategy involving withdrawal and re-delivery of Russian metal.
• Warehouses must use 're-issuance/movement code' for re-issued Russian warrants.
• LME streamlines process for reintroducing Russian metal and allows conversion of ineligible type.
• New rules may have unintended consequences, and LME is prepared to make further adjustments.