Saturday, November 12, 2011



SBB Breaking News!
LME suspends half of its billet warrants


The London Metal Exchange on Friday acted to prevent a possible abuse of its trading rules, by suspending the validity of about half the warrants for steel billet currently sitting in its warehouses.

In a statement issued at 17.30, after the close of ring trading, it said it had temporarily suspended 274 warrants as good delivery against its steel billet contract until further notice. The warrants cover billet currently in LME warehouses in Johor (Malaysia), Rotterdam, Chicago and New Orleans.

The exchange said it had “reason to believe” that the holder of the warrants “is not prepared to comply” with LME rules on lending guidance. The LME did not identify the warrant holder, or say what its reasons were for this belief. No-one was available at the exchange to answer SBB's questions.

The lending guidance applies to holders of a dominant long position in the market (more than 50% of warrants and/or cash positions), and is designed to protect other market participants – including holders of short positions – from being squeezed. The dominant position holder is required to lend metal to the market at a specified premium.

A member of the LME billet committee tells Steel Business Briefing: “It is clear that whoever this is has not been following guidelines”. The quantity involved suggests a large trader is the subject of the suspension. SBB understands that the suspended warrants amount to 17,550 tonnes of billet; this was about half of the billet that was on warrant on Friday.

The LME three-month billet price was down on Friday at $525/535/t, from Thursday’s $535/540/t.

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