After reviewing its warehousing policy, the exchange is proposing that warehouse companies in its network will be required to deliver out more metal than they draw in at storage locations where large outbound queues have developed.
Metal Bulletin has outlined six possible scenarios that could play out.
Premiums, then prices, will collapse
Some market participants claim warehouses have been saving the base metals markets from disaster since 2008. They have done so, according to these participants, by providing long-term homes for unwanted metal, disguising the surplus of material and creating mechanisms – such as rent deals and delivery incentives for producers – for users to profit despite poor demand.
Warehouses are already unwinding efforts to secure metal and have, in some cases, stopped paying incentives to producers to deliver directly into sheds.
If warehouses are unable to accept more deliveries, the market will be flooded with unwanted metal and, with fewer incentives...