(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, May 13 (Reuters) - The London Metal Exchange (LME)
has just released the first of its promised new reports,
detailing registered stocks by warehouse operator and the length
of load-out queues at affected locations.
Cue, pun intended, a collective sigh of relief from the
analyst community who have up to now had to guess-timate queue
length based on the LME's previous per-location data.
Indeed, up to now the only way of ascertaining for sure how
long it would take between cancelling an LME warrant and
receiving the metal at queue-jammed locations was to actually
cancel some metal. Anecdotally, this is just what some of the
market's biggest players have been doing, using single-lot
cancellations to test queue length.
Now, we all get the same information, albeit only on an
end-month basis. The LME is still sensitive to releasing
higher-frequency information lest it give more sophisticated
operators an information advantage.
That in itself is a big step forward and a long overdue one.
Given the problem of queues has dogged the LME for several
years, it seems extraordinary that it has taken so long for the
exchange to actually confirm something as basic as waiting time.
Beyond that, the first report has some good news and some
bad news for the LME.
The good news is that the number of queue-affected locations
has fallen from five to four and that the number of locations
with queues in excess of 50 days is just two.
The bad news is that the report reveals how a small number
of warehouse operators control just about all the
exchange-registered stocks, underlining the lack of effective
competition in the LME warehousing space.
Link to LME report:
Graphic on LME load-out queues:
AND THEN THERE WERE TWO
When the LME first unveiled its package of reforms to its
creaking warehouse system back in July 2013, there were five
locations experiencing long load-out queues.
Now there are just four, Johor in Malaysia dropping off the
Moreover, there are just two locations with queues in excess
of 50 calendar days, the threshold for the LME's proposed
load-in-load-out formula for forcing queue decay. That proposal
is now on ice as the exchange appeals a UK High Court ruling
that its consultation process was flawed.
No surprises that the two are Vlissingen in the Netherlands
and Detroit in the U.S, both of which have more than a million
tonnes of aluminium awaiting physical load-out.
Vlissingen is "owned" by Pacorini, the warehousing arm of
Glencore. The report reveals the full extent of its
dominance in what was once a Dutch fishing port. Only one other
operator, Worldwide Warehouse Solutions (WWS), holds any metal
and that just 300 tonnes. The rest of the 2.24 million tonnes
sitting in Vlissingen at the end of April was in Pacorini sheds.
The aluminium load-out queue at Vlissingen was 748 calendar
days at the end of last month. That for other LME-registered
metals, excluding nickel, tin and steel, which have separate
load-out requirements, stood at 63 days.
Detroit is where the queues first began and it will still
take 683 days to get aluminium out of sheds operated by the
dominant operator, Metro, owned by Goldman Sachs. The
queue for other metals is 186 days.
Both Pacorini and WWS have some foot-hold in Detroit but
held just 33,930 tonnes between them at the end of April,
compared with the 1.56 million tonnes in Metro sheds.
The other two locations to feature in the LME's report are
New Orleans and Antwerp.
Pacorini held almost 89 percent of the registered tonnage
(much of it zinc) in New Orleans at the end of April, with Metro
accounting for the balance. The Pacorini queue stood at 44 days
for all metals, implying no "dominant" queue.
A similar situation exists at Antwerp where the "all-metal"
queue at Impala Terminals, the warehousing arm of Trafigura, was
But Impala has been beating a steady retreat from the LME
warehousing business and that figure is likely to fall fast.
Impala held just 42,761 tonnes of registered tonnage in
Antwerp at the end of April with 27,494 tonnes of that awaiting
load-out, a fraction of the tonnages involved at the other three
Graphic on LME stocks by warehouse operator:
Graphic on LME warehouse rent since 2000:
Perhaps more revealing than the queue length at specific
operators was what the new report says about the broader LME
It is a landscape largely dominated by just four players,
namely Pacorini, Metro, Steinweg and Henry Bath, the latter one
of the assets included in JP Morgan's sale of its
physical commodities business to Mercuria.
Between them they were storing just over 95 percent of all
LME-registered metal at the end of April.
Dominant among the dominants is Pacorini, which was storing
almost half of all LME stocks.
This is in part a direct consequence of the load-out queues.
Both Pacorini and Metro used rental revenues from the queues to
finance incentives to attract more metal, outbidding those
without similar critical mass.
The LME's load-in-load-out formula was conceived as a way to
break this vicious circle and although it is currently on hold
pending legal appeal, Metro seems to have changed its behaviour
No metal went onto LME warrant at Metro sheds in Detroit
last month, confirming suggestions that Goldman Sachs, deluged
by negative publicity and a flurry of lawsuits, has clipped its
warehousing arm's wings.
Pacorini, however, may prove harder to tame.
Its sheds in Vlissingen took in 157,025 tonnes of metal in
April, outpacing 74,530 tonnes of departures.
But then it probably doesn't need incentives to attract
metal since its owner Glencore is a power-house of the physical
metals business and likely to view LME warehousing as just one
lever in its bread-and-butter business of exploiting physical
This serves as a reminder that the queues are in part a
manifestation of deeper-rooted problems in the LME's delivery
Too few operators controlling too much registered tonnage
doesn't hold out much promise for an end to years of
above-inflation rent increases.
It's worth remembering that the steepest hikes in LME
storage and load-out charges for the current financial year to
April 2015 were initiated by Steinweg, Metro and Pacorini.
The LME itself understands the problem.
"The challenge for the LME will be to work to restore the
position of LME warehousing as an attractive storage mechanism
for global metal. The key inhibitor to this at present is the
level of rent for LME facilities." ("Public Report of the LME
Warehousing Consultation," November 2013).
And the key inhibitor to controlling rent rises is the
control exerted by a small handful of dominant warehouse
Still, at least we get full visibility on the scale of that
challenge and for that the exchange should be congratulated.
(Editing by William Hardy)