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LME WAREHOUSE

LME Warehouse has most important place in the base metal trading. It gives the indication about the stock position of the base metal in the warehouses. The inventories in the warehouses impact the prices of the base metal in the market. Inventories have a negative correlation with the prices of base metal. When the inventories increase in the warehouses then the prices of base metal decline in the market and vice versa.

LME Warehouse is a place where we can store and handle a multitude of non-ferrous products, including copper, zinc, aluminum, lead, tin, nickel and aluminum alloy. There are over 400 LME approved warehouses in approximately 35 locations covering the USA, Europe, the Middle and the Far East.

If you want to produce or to trade copper or tin, or whatever listed on the LME, you can sell the metal to one of the many big warehouse of the LME, all over the world, and can receive a warrant. This is a way to share the cost of these warehouses between the many industry participants and make it more efficient, to compete against other products.

In LME Warehouses certainty is possible because the metal stored in warehouses belongs to the owner of the warehouse receipt issued by the warehouse company when the metal is first placed in the warehouse.

Investor should also make sure that LME warrants and off warrants are also take into consideration while reading the LME stock scenario which is published by the London Metal Exchange each working day from Monday to Friday.

LME Warrant: A document of possession, issued by the warehouse company, for each lot of LME approved metal held within an LME approved facility is called “LME Warrant”. Warrants are issued as the means of delivering metal under LME contracts. The number of live warrants reported accounts for all warrants that apply to material that is good for LME delivery, which has not been cancelled.

Cancelled Warrant: The number of cancelled warrants indicates the number of warrants for material that have been taken off warrant but haven’t necessarily been moved from the warehouse. These cancelled warrants are reported on by the LME until they are physically moved from the warehouse. Cancelled warrants information is important in that it represents the change in stockpiles of metal, which may no longer be available at warehouses and is booked for removal or onward shipment. This information is a valuable indicator of consumption trends, which in turn can provide valuable information in price trends.

Whenever the cancellation activity increases, it means that more metal is embarked for withdrawal, which will, in turn have positive impact on metal prices. Cancel warrants should be used to compare with the total stock available in the warehouses. This will give a cancellation ratio, which would be different for different metal.
London Metal Exchange does not run or operate its own warehouses. In fact it approves geographical locations globally as good delivery points and then approves warehouse companies, which operates within those locations provided with specific facilities. Now, these approved warehouse companies set fixed rents, which is charged on yearly basis against the storage of LME- warranted metal. These rent charges are published by the exchange and become effective on the beginning of every new financial year i.e. 1st day of April every year. Also if there are any changes to the costs of the rent, in that case warehouse companies has to inform the exchange by giving notice, further which is given to LME members at least three months prior to the operative date.

Many of the participants in base metals markets would probably expect a strong negative relation between LME warehouse inventories and 3-month forward prices over long periods of time. In other words they would expect lower inventories to be associated with higher prices, and vice versa. However, the existence of a strong negative relationship between inventories and prices does not guarantee the profitable trading signals always as other economic factors also determine the prices. But somewhat analysis suggests that the market more often is slow to react, than not, to significant changes in LME inventories for most of the base metals.