Published by:James McKeigue<>
24 Jun 2025 @ 09:13 UTC

The London Metal Exchange has reacted to dwindling LME stocks and large metals future positions by implementing new rules, effective from Monday June 23. The LME announced on Friday a new set of temporary front month lending rules aimed to curb market disruptions caused by traders taking dominant positions that exceeded the amount of inventory sitting in the bourse’s warehouses.
The new rules will be applied to any participant holding a cumulative spot futures position in the nearby monthly contract that is larger than the total available stock of that metal on the LME. The participant would be forced to offer to lend their excess – that is, the amount of their position that is greater than the available LME stock – to other participants at level (i.e. with zero premium).
In effect, Friday’s rule change formalizes the bilateral agreement that the LME reportedly reached with Mercuria Energy Group in early June regarding its aluminium futures position.
In recent months the LME has been closely monitoring large positions across multiple Contracts, the LME said on June 20. With immediate effect, the LME, acting through the Special Committee, has determined that it is appropriate in the current circumstances, to amend the existing Lending Rules to introduce ‘Front Month Lending Rules’.
It’s worth noting that participants are only obliged to lend their position out of M1 [month 1] and not out of spot, a broker said. So this more serves to nip potential squeeze situations in the bud rather than remedy an ongoing one – as such [it] has been of little help on the extreme nearby copper premiums, which have only exacerbated today [June 23].
Reaction from market participants was mixed but broadly supportive.
I can see why the LME felt it had to do this, a trader said. There is rarely a fair reason for taking a long position in excess of what’s available. It’s good the LME is monitoring the situation.
Normally you would expect a backwardation to incentivize metal into the LME system but we have a couple of factors why that might not happen, the broker said.
With copper you have the massive spread between the LME and CME, which means copper won’t come back to the LME. Also, with aluminium we have the potential supply disruption from the Middle East at the moment, the broker added.
Against that background of falling inventories has been the entrance of new trading houses into the metals market. You have new trading houses with big pockets and large risk appetite, the broker said.
We’ve been spending all weekend trying to digest this, a second trader said. I think the rules will probably take away some of the interest in the LME for the big [players], but it will help make it more orderly for the rest of us.
Sources told Fastmarkets they felt the bourse was trying to balance the different profiles and needs of its users.
The LME likes to think of itself as the vital exchange that moves metal to where it’s needed in the global economy, a third trader said. But then it also likes the big flows that come from banks, hedge funds and new trading houses.
It’s a positive that the exchange is being proactive in rebuilding its reputation following the nickel debacle, Fastmarkets analyst James Moore said, referring to the suspension of nickel trading on the LME in March 2022.