One of the core part of Alcoa's argument against changing load out rates at warehouses is that it probably won't change much and perhaps decrease transparency with more participants merely shifting metal into different LME warehouses or off warrant altogether.
The reality is that the uncertainty generated by potential LME rules changes has already lowered premiums, although they do remain high. Its also likely that reducing queue times will further reduce premiums given the mechanics of how carry trades are set up.
Physical premiums can't be hedged, which is an issue for those participating in carry trades, as they are then are no longer risk free. But the way these trades have evolved is that the warehouses are now covering physical premiums for delivery for those entering into carry trades so they don't bear this risk. The warehouses can recover this cost through the rent earned on keeping metal in the warehouse, which has risen thanks to the length of queues to get metal out.
So essentially the length of the queues to get metal out of warehouses and the premiums are linked. The longer the metal is in the warehouse, the higher the ability for the warehouse to bid for metal to cover premiums and lock up stock into financing deals.
So shifting the concentration of LME stock to different warehouses would ultimately lower premiums as warehouses have less incentive to cover this cost. Shifting metal out of LME warehouses altogether bears different risks for carry trades, as you can no longer hedge the premium for delivery risks.
It should be noted that while premiums have shifted, there has been no meaningful shift in the composition of LME inventories.
As rightly pointed out by Alcoa, these rule changes don't shift the incentives to hoard metal in carry trades, which would appear to be unaffected by the uncertainty surrounding load out rates. But the uncertainty has already affected premiums and the willingness of warehouses to cover the premium cost for financing deals.
