New horizons but same old problems for LME warehousing: Andy Home
By Andy Home
LONDON, Aug 1 (Reuters) -The London Metal Exchange (LME) has just listed the Saudi Arabian port of Jeddah as a good delivery location for copper and zinc.
This addition to the LME's global delivery network, which becomes effective three months after the approval of the first warehouse, is the first new listing since Amsterdam in 2018.
The exchange is also exploring the possibility of adding Hong Kong to the list, no doubt hoping that its owner Hong Kong Exchanges and Clearing (HKEx) 0388.HK can help overcome the Chinese authorities' historical resistance to LME warehouses.
New locations may provide a booster for a warehouse network that has seen capacity contract and the number of operators decline over the last 10 years.
However, old problems persist.
There was a 253-day queue to load aluminium out of LME warehouses in Malaysia's Port Klang at the end of June, the longest waiting time since November 2016.
The LME storage business also remains highly concentrated with four dominant operators, a potential problem when one of them is facing an uncertain future.
SHRINKING SPACE
Total LME registered storage capacity at the end of June was 3.3 million square metres, down from 4.3 million three years ago.
The pace of net shrinkage slowed to 44,000 square metres over the last year and the downtrend shows signs of bottoming out. The number of registered warehouses grew by 15 units to 468 after falling to a multi-year low in June 2023.
The three-year decline in registered capacity reflected a period of low exchange stocks as combined warranted and shadow off-warrant inventory fell below one million metric tons over the second half of 2022.
Stocks have since risen to 2.3 million as of the end of May, although inflows have been tightly concentrated on just a handful of locations.
Russian aluminium has accumulated in the South Korean port of Gwangyang, while non-Russian aluminium has been dumped in Port Klang. This year's heavy inflows of both lead and zinc have mostly ended up at Singapore warehouses.
All three locations have bucked the trend of declining storage capacity over the last year and ISTIM UK Ltd's additional 11 warehouse units at Port Klang were the single biggest component of the broader year-on-year increase.
JOIN THE QUEUE
Rent-sharing is the common denominator behind this year's big deliveries of metal into the LME system. Such deals allow the entity that warrants the metal to earn a slice of the future rental revenue.
The buyer of that metal may be understandably reluctant to pay rent to a potential competitor but the only way to escape the contract is to physically load the metal out and deliver it to another warehouse company.
The larger the original warranting, the greater the potential for a queue. ISTIM warehouses in Port Klang received 652,525 tons of aluminium in May. The cancellations began almost immediately as buyers looked to move their metal. ISTIM had 505,050 tons awaiting physical load-out by the end of June.
It's an echo of the 2010s, when the LME's load-out problems caused user outrage and drew the unwelcome attention of U.S. regulators, who wanted to know why it would take 702 days to take physical delivery from LME warehouses in Detroit.
Subsequent reforms to the LME system mean that such self-perpetuating super-queues are no longer possible. What we get now are what the exchange calls "operational" queues.
Which may not be much comfort for those late to the aluminium logjam in Malaysia. They're unlikely to see their metal until this time next year.
DOMINANT FOUR
ISTIM's ability to attract such huge tonnages to its warehouses has made it a dominant presence in the LME delivery system. The company was storing 55% of all warranted LME stocks at the end of June.
The other three major players are Access World, C. Steinweg and the Pacorini Group. Between them they were storing 92% of total inventory at the end of June and they currently account for 344 of the total 468 units listed globally.
This is also a throw-back to the last decade, when Metro International, then owned by Goldman Sachs GS.N, industrialised the queue model and built a dominant LME storage position in Detroit.
Access World, acquired by Glencore GLEN.L in 2010, did the same in the Dutch port of Vlissingen, generating a load-out queue of 771 days at one stage.
Smaller operators struggled to compete then, and clearly they still do. Many who joined the LME warehouse business in hope of getting a slice of the queue action in the 2010s have since withdrawn.
The number of LME-registered warehouse operators has declined from 36 to 25 over the last five years and that includes nine that offer LME services in a single location.
WAREHOUSE FOR (RE)SALE
The uncertain status of Access World highlights the problems that can be caused when LME stocks are concentrated in such a small pool of warehouse operators.
Glencore thought it had sold the company to Global Capital Merchants (GCM), a company registered in the British Virgin Islands, in 2022.
However, Access World is back on the sales block after the buyers failed to make full payment and Glencore is reportedly scouting for new potential owners.
Access World warehouses held almost 12% of LME on-warrant stocks at the end of June.
A DECADE OF REFORM
The LME, to its credit, has spent a lot of time and effort trying to smooth out the many wrinkles in its delivery system, which - like everything else on the 147-year-old exchange - is quite distinct from what you would find in any other futures market.
The queues have never really gone away but multiple tweaks of the rule-book have at least constrained them and the amount of money that can be made from them.
The exchange has also massively enhanced transparency around its delivery network. A daily registered stocks report has been supplemented with monthly updates on off-warrant stocks, stocks by warehouse operator and, of course, queue length. This column has drawn heavily on all of them.
Yet, just how much more efficient is the LME's delivery network after a decade of reform?
A limited number of operators still seem to dominate the on-warrant storage business and 253 days is still a long time to wait to get your metal.
The opinions expressed here are those of the author, a columnist for Reuters
LME Warehouse capacity decline shows signs of bottoming out https://tmsnrt.rs/4fjcEVE
LME Warehouse Stocks have rebuilt from the 2022 lows https://tmsnrt.rs/4c7l53q
ISTIM dominates the LME storage business https://tmsnrt.rs/4dgmOEO
Editing by David Evans
අදාළ වත්කම්
නවතම පුවත්
වියාචනය: XM Group සමාගම් ක්රියාත්මක කිරීම පමණක් වන සේවා සපයන අතර වෙබ් අඩවියේ හෝ වෙබ් අඩවිය හරහා ලබා ගත හැකි අන්තර්ගතය බැලීමට සහ/හෝ භාවිත කිරීමට පුද්ගලයෙකුට ඉඩ සලසමින් අපගේ මාර්ගගත වෙළඳ පහසුකම වෙත ප්රවේශය ලබා දෙන අතර වෙනස් කිරීමට හෝ පුළුල් කිරීමට අදහස් නොකරයි. එවැනි ප්රවේශය සහ භාවිතය සෑම විටම (i) නියමයන් සහ කොන්දේසි, (ii) අවදානම් අනතුරු ඇඟවීම් සහ (iii) සම්පූර්ණ වියාචනයට යටත් වේ. එබැවින් එවැනි අන්තර්ගතයක් සාමාන්ය තොරතුරුවලට වඩා වැඩි යමක් සපයා නොමැත. විශේෂයෙන්ම, අපගේ මාර්ගගත වෙළඳ පහසුකමේ අන්තර්ගතය පෙළඹවීමක් හෝ මූල්ය වෙළඳපොළවල කිසිදු ගනුදෙනුවක් සිදු කිරීමට ඉදිරිපත් කිරීමක් නොවන බව කරුණාවෙන් සලකන්න. ඕනෑම මූල්ය වෙළඳපොළක වෙළඳාම් කිරීම ඔබේ ප්රාග්ධනයට සැලකිය යුතු අවදානමක් එක් කරයි.
අපගේ මාර්ගගත වෙළඳ පහසුකමේ ප්රකාශිත සියලු කරුණු අධ්යාපනික/තොරතුරුමය අරමුණු සඳහා පමණක් අදහස් කෙරෙන අතර මූල්ය, ආයෝජන බදු හෝ වෙළඳ උපදෙස් සහ නිර්දේශයන්; හෝ අපගේ වෙළඳ මිල පිළිබඳ වාර්තාවක්; හෝ ඕනෑම මූල්ය උපකරණයක ඉදිරිපත් කිරීමක් හෝ ඒ සඳහා පෙළඹවීමක්; හෝ විශේෂ ඉල්ලීමකින් තොරව ඔබ වෙත ලබා දෙන ලද මූල්ය ප්රවර්ධනයන් ලෙස නොසැලකිය යුතුය.
ඕනෑම තෙවන පාර්ශවීය අන්තර්ගතයක් මෙන්ම XM විසින් සකසන ලද අන්තර්ගතය එනම් අදහස්, පුවත්, පර්යේෂණ, විශ්ලේෂණ, මිල ගණන් සහ වෙනත් තොරතුරු හෝ මෙම වෙබ් අඩවියේ අන්තර්ගත තෙවන පාර්ශවීය වෙබ් අඩවි සඳහා සබැඳි සාමාන්ය වෙළඳපොළ විවරණයක් ලෙස "පවතින පරිදි" සපයා ඇති අතර එහි ආයෝජන උපදෙස් ඇතුළත් නොවේ. ඕනෑම අන්තර්ගතයක් ආයෝජන පර්යේෂණයක් ලෙස අර්ථ දක්වා ඇති ප්රමාණයට, ආයෝජන පර්යේෂණයේ ස්වාධීනත්වය ප්රවර්ධනය කිරීමට නිර්මාණය කර ඇති නෛතික අවශ්යතාවලට අනුකූලව අන්තර්ගතය සකසා නොමැති බවත් එලෙස අරමුණු කර නොමැති බවත් ඔබ සලකා පිළිගත යුතු අතර එබැවින් එය අදාළ නීති සහ රෙගුලාසි යටතේ අලෙවිකරණ සන්නිවේදනයක් ලෙස සලකනු ලැබේ. ඉහත සඳහන් තොරතුරු සලකා මෙතනින් ප්රවේශ විය හැකි, ස්වාධීන නොවන ආයෝජන පර්යේෂණ සහ අවදානම් අනතුරු ඇඟවීම පිළිබඳ අපගේ දැනුම්දීම ඔබ කියවා තේරුම් ගෙන ඇති බව සහතික කර ගන්න.
