This is set to be the year in which the London Metal Exchange (LME) finally kills off the load-out queues that have plagued its physical delivery network over the last five years. 
But the cost of doing so has just become apparent. 
Average storage rents and load-out charges, weighted by stock levels at the end of November, will jump by 10% and 12% respectively from next April. 
Some sort of warehouser reaction to the raft of rule changes targeting the load-out queues was always on the cards. 
The scale of that reaction, however, was unexpected. Some of the increases in exchange storage costs are unprecedented. 
Also unexpected was the identity of those challenging the LME with the most aggressive hikes in charges. 
There is no doubt that some warehouse operators have thrown down the gauntlet. It only remains to be seen how the LME chooses to respond. 
There are no easy options because now laid bare is the true heart of the LME’s warehousing problem. The cost of exchange storage has been a bone of contention for as long as anyone can remember. 
The LME has on many occasions shied away from tackling it, fearing the legal consequences of doing so. But the latest rent increases may be the final straw for both exchange and users. 
The increases in rent and load-out charges for the financial year beginning April mark the opening of a new front in the long-running war between the LME and its warehouse operators. 
The exchange had called for “restraint” in cost increases in the last two rent cycles and had been rewarded with stock-weighted average rent increases of three% in both years. 
Now, however, the gloves have come off. This was always a possibility, as the LME itself has warned on several occasions. 
The queue-based rent cap (QBRC) rule comes into effect in March. It will reduce by half the amount of rent payable on metal stuck in a queue longer than 30 days and eliminate rent completely after 50 days. 
That of course fractures the revenue model of those operators with a long load-out queue and hiking rents and load-out charges was always the most likely response. All eyes were on Pacorini, the LME warehousing arm of Swiss commodities giant Glencore. 
Not only is Pacorini the largest storer of LME-registered metal, holding just over 53% as of the end of November, but it also “owns” the longest queue at the Dutch port of Vlissingen, 471 days for aluminium at the end of the same month. 
Yet Pacorini seems to have carefully calibrated its rental and load-out charge increases for the coming financial year. Aluminium rental charges will rise from 49-51 cents per tonne per day to 50-54 cents, although no surprise that the top end of that range applies to Vlissingen. 
Pacorini’s load-out charge, or the “free on truck” (FOT) charge as it is known in LME parlance, will increase by 6.44% to €31.40 per tonne at the Dutch port. It’s of course possible that these relatively restrained increases are a compromise resulting from the annual December push-and-shove negotiations between the LME and its warehouse operators before rental and FOT charges are formally announced. 
Evidently resistant to such soft coercion, however, was Metro, the operator of the original load-out queue at Detroit, once controversially owned by Goldman Sachs but since sold to the Reuben brothers. 
It has raised aluminium rents by a third to 72 cents per tonne from 54 cents in the current rental year to March. It has also jacked up its FOT charges by 39% to $55.55 per tonne in the US and by even more at its South Korean locations. 
Metro’s super-charged increases are surprising. After all, the Detroit load-out queue has been diminishing at a steady rate of around 30 days per month. 
As of the end of November it was “just” 206 days and, unlike Pacorini, there is relatively little uncancelled metal at Detroit, meaning the queue cannot flex significantly longer. 
Indeed, at its current decay rate that queue should shorten to the LME’s targeted 50 days around May, limiting the likely hit from QBRC on rental revenue. 
Metro doesn’t have any queues at any of its other locations and has seen its total share of LME storage slide to under 10% from close to 20% a year ago. That, of course, may be one reason for its aggressive rental and FOT hikes. 


l Andy Home is a columnist for Reuters. The opinions expressed are his own.