Column: LME warehousers bet the great metals destock is over: Andy Home

Infinity Logistics and Transport Ventures

24/08/2023 15:03

By Andy Home
       LONDON, Aug 24 (Reuters) - It's been a tough couple of
years to be in the metals storage business with dwindling
inventories taking a heavy toll on the London Metal Exchange's
(LME) global warehouse network. 
    Exchange storage capacity contracted by almost a quarter
between March 2021 and March 2023, while the number of
registered warehouse units has fallen from over 600 to a current
453. 
    Several smaller operators have withdrawn their LME services
and the trade houses that dominated exchange warehousing over
the last decade have largely sold up to specialist logistics
companies. 
    Supply-chain disruption, first from COVID-19 and then from
the spike in energy prices that followed Russia's invasion of
Ukraine, depleted stocks at the market of last resort, meaning
less demand for warehousing space.
    However, the stocks cycle may now be turning. 
    LME storage capacity grew modestly in the second quarter of
this year, the first quarterly increase in two years, amid signs
that stuttering global metals demand is feeding through into
rising inventory. 
    
    LESS STOCKS, LESS STORAGE 
    LME-registered stocks of all metals slumped from 2.7 million
metric tons in the first quarter of 2021 to a multi-year low of
571,000 at the start of this year. 
    LME shadow stocks, sitting in off-exchange warehouses, were
just 246,000 metric tons at the end of June, down from over 2.0
million in the first quarter of 2021. 
    The great destock has resulted in a significantly
slimmed-down LME warehouse network. 
    Total storage capacity shrank from over 4.3 million square
metres in the first half of 2021 to 3.3 million at the end of
March 2023. 
    The number of exchange-registered warehouse units has fallen
by 151 over the last two years. 
    Halley Metals, 4STOX and Kloosterboer all withdraw from the
LME warehousing business in the first half of this year. All
three were localised operators servicing Spain, Antwerp and the
Dutch port of Vlissingen respectively. 
    C. Steinweg, the largest LME operator by number of listed
warehouses, has delisted a net 34 units over the last two years.
Many were at Rotterdam, where the company has been selling older
land-locked warehouses as it develops new deep-water capacity.
    Pac Global Services has cut a net 15 units over the same
period but with 74 units has overtaken Access World as the
second largest player. 
    Access, which was sold by trade house Glencore  GLEN.L  to
Infinity Logistics  1442.HK  in 2022, has slashed its LME
footprint by a net 49 units to 64 since mid-2021.  
    However, the pace of contraction has appreciably slowed in
the 12 months. The total number of LME-registered warehouses
fell by a modest 19 units after the previous year's mass cull of
132 units. 
    Some operators are even expanding again. 
    
    PIVOT TO SOUTH KOREA
    LME storage capacity stopped falling in the second quarter
of 2023, registering a small net increase of 31,300 square
metres relative to the first quarter. 
    Continued shrinkage at Rotterdam and Singapore was offset by
newly-listed capacity at Malaysia's Port Klang and the South
Korean ports of Busan, Incheon and Gwangyang.
    LME storage space at the latter has grown by 35,000 square
metres to 249,000 since the end of September last year. 
    Gwangyang now boasts 63 exchange-registered warehouses, the
second highest tally after Rotterdam.
    LME warehouse operator Istim has been expanding its
presence, listing 24 units over the last year. It is now the
largest LME operator in the port with 31 units.
    Gwangyang has superseded Port Klang as the new hub for
storing LME-registered aluminium with stocks growing from just
24,025 metric tons at the start of the year to a current
257,025. 
    Istim has been the main recipient of this inflow metal,
although other operators are starting to get in on the act.
    
    TURN OF THE STOCKS CYCLE?
    Much of the aluminium warranted in Gwangyang has been
Russian metal displaced from Western markets. Although not
officially sanctioned, many Western users have self-sanctioned,
opting to avoid Russian aluminium in favour of other producer
brands. 
    China has increased its imports of Russian metal but there
is still evidently plenty available for LME delivery.
Russian-brand aluminium accounted for 81% of all LME-registered
aluminium at the end of July. 
    More is likely to arrive in the coming weeks. 
    China's metals industry is struggling with a collapsing
property sector at home and weaker products demand abroad.
Manufacturing activity in the United States and much of Europe
is also contracting.  
    Industrial metals are going through a cyclical downturn 
which is translating into rising LME inventories.
    Headline inventory rebuilt from the January lows to 780,000
metric tons at the end of July and arrivals have accelerated
since then. 
    LME zinc stocks are now the highest they've been in a year,
while copper stocks have grown from 60,225 to 96,625 metric tons
in the space of a month. 
    But it is aluminium that tends to accumulate fastest during
times of weak demand.  
    It is by some margin the largest base metal market with
primary production of over 69 million metric tons and the supply
chain is notoriously slow to react to changes in usage due to
the cost of closing and restarting smelters. 
    Aluminium has been prone to periods of rapid stock build in
the past and the cycle seems to be repeating itself again this
year, albeit with a distinctly Russian twist. 
    This is not good news for metal bulls. But it's decidedly
good news for LME warehouse operators. 
    
    The opinions expressed here are those of the author, a
columnist for Reuters.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
LME storage capacity stops shrinking    https://tmsnrt.rs/47HmE7j
The contraction in LME warehousing shows signs of ending    https://tmsnrt.rs/3qGG4st
LME storage pivots to South Korea    https://tmsnrt.rs/45E1dlO
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jane Merriman)
 ((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter
https://twitter.com/AndyHomeMetals))