By Eric Onstad
LONDON (Reuters) - The London Metal Exchange (LME) took action on Thursday against surging costs at its approved network of warehouses, announcing plans to freeze maximum rental rates for five years.
The move was the latest in a series of reforms at the 139-year-old exchange's global network of more than 600 warehouses at 37 locations, which have included tough rules to slash delivery backlogs.
“The metals industry has expressed concerns over the headline rates charged by LME-registered warehouse operators," Matthew Chamberlain, the LME's head of business development, said in a statement.
"The simple solution we are proposing today... we believe will bring clarity and stability to the industry, with minimal market disruption,” says Chief Executive Garry Jones.
The LME plans to launch the rent freeze in April next year after a consultation.
Under the proposal, the exchange would set the initial schedule of warehouse rents and free-on-truck (FOT) charges by calculating the average of the highest published charges for the years 2015-16 and 2016-17.
A set of charges would be set for each metal and each country, said the LME, which is owned by Hong Kong Exchanges and Clearing Ltd. (HK:0388).
The LME has previously said that the average stock-weighted increase in rents this year was 7 percent, against 3 percent in the previous two years. FOT charges rose by 9 percent, up from 2 percent for the past two years.
The exchange, the world's oldest and largest market for industrial metals, added that once the freeze ended, rates would rise annually based on the consumer price index.
The LME launched a consultation on the proposal, which will close on Aug. 19, with plans to publish its conclusions by the end of September.