LME temporarily suspends lending rules for cobalt contract

The London Metal Exchange (LME) temporarily suspended certain lending requirements for parties holding large amounts of inventories in its cobalt contract it said on Thursday, after available stocks slid.

The exchange’s lending rules kick in when one party has a dominant position, forcing that party to provide material to other investors.

The LME cancelled its lending requirement for a party with a position in cobalt equal to 90% or more of available inventories to lend at a level premium, it said in a statement.

“This measure is designed to ensure that participants are not disincentivized from continuing to hold live warrants or to deliver in additional metal in the current low-stock environment,” it added.

A warrant is a legal document showing ownership of inventories in LME warehouses.

The exchange, the world’s oldest and largest market for industrial metals, said the measures will be temporary.

LME data, which is delayed, shows total inventories of 126 metric tons, but all of it either cancelled or earmarked for delivery out of warehouses, leaving no available stocks.

Any party that moved metal into the warehouse would likely be hit with the strict lending rules, so the LME relaxed the requirements to draw in more inventories, an industry source said.

The LME data also show that there are two parties, each with a large short and long futures position equivalent to more than 40% of open interest.

The LME is owned by Hong Kong Exchanges and Clearing Ltd.

(By Eric Onstad; Editing by Susan Fenton)