Finally bowing to pressure from consumers and major producers Alcoa Inc and UC Rusal, the London Metal Exchange (LME) has agreed to boost transparency by to publishing new information about the futures positions of hedge funds and other traders, according to the FT.
In a statement by an official at the LME’s parent Hong Kong Exchanges and Clearing (HKEx), the exchange announced it would start publishing information for the first time on the level of participation by hedge funds and other speculators in a similar manner to the so-called “commitments of traders” reports the US futures exchanges do.
The LME has long resisted publishing such reports, arguing that they confuse rather than clarify the market. The FT writes that Martin Abbott, who announced his resignation as chief executive of the exchange in June, said last year: “The reason we don’t publish a ‘commitments of traders’ report is we don’t deliberately publish rubbish,” suggesting that the reports may not in themselves achieve the clarity that market participants are looking for.
Part of the problem is that major players hold positions on behalf of clients as well as themselves, but larger users obviously feel seeing who are the position holders will help to focus attention on the warehouse queue issues and those taking advantage of the system. How much of the metal in Pecorini’s 54 warehousing units in the Dutch port of Vlissingen is held by their parent Glencore, for example, and how much by other market participants?
LME Transparency No Panacea
In itself, greater transparency will not solve the LME’s problems – that will only come through a combination of the LME exerting what limited control mechanisms it has around who is licensed to operate warehouses and where; and forcing warehouse operators to load out sufficient material to gradually (and we use the word with caution, a flood would be disastrous) reduce warehouse queues.
Longer-term, the closure of excess smelting capacity would be a move to bring the supply market into balance, but it would throw a little light onto what has been (and remains) a murky marketplace with no one entirely to blame for the dysfunctional nature of the market – but no one entirely innocent either.