In a move that could further challenge the London Metal Exchange’s (LME) dominance, the CME Group is talking to several warehouse companies to expand its metal storage network globally, Reported Reuters quoting three metal industry sources which gave the information.

Partly because of a result of controversy surrounding the LME warehouse system, the CME has been steadily building its storage network in recent years. The CME is the world’s largest futures market operator.

Metals such as copper, aluminum, zinc and lead are physically deliverable on the CME and the U.S. exchange intends to take advantage of this USP and has thus been negotiating with firms about joining its list of approved warehouses to hold metals mentioned above.

“The CME is keen on growing its warehousing system, they want more locations. They want to get more companies involved around the world, in Asia, the United States and Europe,” one source told Reuters. There were no comments from CME.

Even while catching up with the LME is a tall order, the latest move is seen as a bold one, and the sources who Reuters talked to did not specify how many new warehouses the CME was targeting.

For reasons of authority to speak on the issue to the media, Reuters did not name any of the three sources that has parted with the information to the media.

According to information on its website, there are 24 approved warehouses in the warehouse network of the CME. Three of these warehouses were added in Europe recently to store material for its new lead contract by the CME while most of the 24 warehouses are based in the United States.

The LME, which is owned by Hong Kong Exchanges and Clearing Ltd, has a much larger number of approved warehouses – 600 of them, and this network of warehouses is spread across 37 locations across the world, including Asia.

LME is the world’s biggest and oldest metals market place and it has traditionally been a first port of call for metal consumers and producers. The sources said that the move by the CME to secure some new contracts is a part of a move to poach business from the LME.

“The lead and zinc contracts are part of its (CME’s) push to take the LME on… it’s definitely one to watch,” one industry source said.

Earlier this year the CME launched a lead futures contract while the exchange had launched a zinc contract in 2015.

LME volumes greatly surpass those on the CME.

Several years ago, consumers had bitterly complained that they had to endure long queues of up to two years to get delivery of aluminum at several LME warehouse due to backlogs and the CME’s move comes after the consumers’ complained.

While the LME has imposed a series of reforms in recent years which have cut down the waiting times, such long queues and delays meant fat profits for warehouse owners who collected rent as long queues built up.

(Adapted from Reuters)