(The opinions expressed here are those of the author, a
columnist for Reuters)
By Andy Home
LONDON, April 4 Just when we all thought the
London Metal Exchange (LME) had closed the chapter on its
logistics woes, out tumbles another skeleton from the exchange's
This time it is the turn of Access World, the metal
logistics arm of Glencore that was previously known as
Pacorini Metals, to feel the regulatory heat.
Its U.S. subsidiary has just been hit with a $1.4-million
fine plus costs for, the LME alleges, falsifying documents
related to its storage of zinc in the U.S. port of New Orleans.
Access World has settled with the LME without "admitting any
of the alleged breaches or matters" that led to the exchange
investigating the company, the LME said.
Access and its owner Glencore, it should be noted, are still
fighting off a lawsuit by zinc users which includes similar
allegations of malpractice in its New Orleans LME logistics
This is the latest warehousing scalp claimed by the
The list now includes Metro International, which was
punished with a $10 million fine for abetting "merry-go-round"
storage deals for aluminium, CWT, which was fined
100,000 pounds ($149,000) for failing to notify the LME of
potential conflicts of interest between its warehousing and
trading arms, and Worldwide Warehouse Solutions (WWS), which was
fined 30,000 pounds for misreporting lead stocks.
The charge levelled against Access is specific, namely an
alleged breach of Clause 7.5.5(i) of the LME's warehousing
agreement, requiring "proper and accurate recording of
transactions in books and records".
Left to one side is the bigger question of whether
misreporting stocks levels in the LME system has market impact.
Do exchange inventories, published each day by the LME,
actually matter much in price determination?
Because if they do, the LME should republish the corrected
zinc stocks figures for that period.
The LME alleges that on occasions between September 2010 and
October 2014 Access World (USA) LLC "employees falsified
documents, including bills of lading, to give the exchange the
impression that zinc had physically moved from the New Orleans
delivery point when it had either not moved or it had moved but
on a date other than shown in the inventory records".
Access World said it had encountered logistical issues in
New Orleans during that period, according to the LME statement.
Rather than contact the exchange to discuss the issues,
senior management allowed customers to leave metal in warehouses
while employees allegedly created the falsified records showing
the metal had moved, the LME added.
These allegations date back to a period when there were huge
amounts of zinc sitting in LME warehouse sheds in New Orleans.
In December 2012, for example, the U.S. port held over 800,000
tonnes of zinc, representing around two-thirds of the total
amount in the LME's global system.
Access World was the dominant logistics operator in the city
at the time.
The LME only started publishing stocks by operator
information in April 2014 but in that month Access held 668,150
tonnes of LME-registered metal (not just zinc) in New Orleans.
The only other operator with registered stocks in the city that
month was Metro, which held 86,625 tonnes.
The New Orleans zinc stocks were highly mobile over the
2010-2014 period with flurries of huge cancellations, such as
the 250,000 tonnes that were moved off-warrant in the space of
three days in September 2012.
There were both significant daily outflows and sporadic
large-tonnage inflows of zinc.
It was fairly obvious to the outside world that this was
metal circulating between on- and off-warrant storage in the
city as stocks financiers searched for the cheapest rental for
In essence, New Orleans was a zinc mirror of the much larger
circulation of aluminium at Detroit orchestrated by Metro and
dubbed the "merry-go-round" by U.S. Senator Carl Levin in a
committee hearing into Wall Street's involvement in the
commodities business. Metro was owned by Goldman Sachs at the
It seems that Access World was at times struggling to catch
up with its own "Big Easy" zinc merry-go-round.
Graphic on LME zinc stocks and price: 2010-2017:
RESHAPING THE NARRATIVE?
Will the LME now republish the correct historical figures
for New Orleans zinc outflows over the four-year period?
Does it matter?
After all, the U.S. Securities and Exchange Commission (SEC)
found in December 2012 that "LME inventories specifically do not
appear to have any independent statistical effect on copper
That finding came amid the SEC's consideration of a physical
copper fund promoted by JPMorgan. It approved creation of the
fund, although it was subsequently never launched.
It's still a questionable conclusion.
The SEC confined itself to considerations of outright price
rather than spreads, which, particularly on the LME, can be far
more sensitive to shifts in stocks availability.
Moreover, sudden, unexpected stocks developments can
generate fleeting price movements. This appeared to be the case
with WWS's erroneous lead stocks reporting in March 2016.
True, the prolonged nature of the allegedly false reporting
of zinc stocks by Access mitigates against such a direct,
specific price reaction.
But LME stock movements do affect a market's narrative over
Falling zinc stocks over the period 2012-2014 fed into a
story of mine closures and pending shortfall. The LME
three-month price rallied above the $2,400 level in
September 2014 to hit what were then three-year highs.
It did so again in May 2015 when LME stocks had fallen
further, although zinc's bull narrative was unwound later that
year when 230,000 tonnes of zinc flooded into the LME system
over the space of August and September. At New Orleans. Where
Did Access' misreporting of daily load-outs play a part in
that price roller-coaster?
It's impossible to say, not least because we have no idea of
the size of the misreporting. If it were a few hundred tonnes
here and there, the impact would have been marginal. A few
thousand tonnes and things might look a little different.
Right now, the official stocks record stands. And that's
problematic because, whatever the SEC might think, there are
still plenty of market participants who factor in stock-price
relationships to their assessments of market fundamentals.
Maybe they're wrong to do so. But even if they are wrong,
the least the LME could do is provide them with accurate
(Editing by David Evans)