Warehousing firm ISTIM UK held 35% of total aluminum stocks in London Metal Exchange-registered warehouses in its Malaysian facilities by the end of November, data from the LME showed on Tuesday.
Aluminium stocks in ISTIM’s Port Klang and Johor warehouses rose 213,275 tonnes in November from the previous month to 476,846 tonnes, according to the data. Total aluminum stocks in LME warehouses stood at 1.27 million tonnes at the end of November.
The business model of ISTIM, controlled by the Whelan family who founded major warehousing company Metro, is based on queues to take material out of warehouses and earning rent from storage. It does not offer logistical services.
The LME reformed its storage rules after queues to take aluminum out of warehouses in Detroit soared to near two-year highs in 2014, sparking complaints from consumers in transport and packaging about artificially high aluminum prices.
Much of the metal held by ISTIM in Malaysia will have come in under deals where the warehouse shares the rent for storing metal with the firm that put it into the warehouse, aluminum industry sources said.
ISTIM declined to comment.
Sources say the LME’s plans to allow longer queues from next year will encourage greater use of rent deals to attract metal as it lifts the floor for incentives that warehouses can pay to get the metal in.
“Incentives on aluminum in Malaysia are around $60 a tonne now, when the new LME rent rules come into effect, that incentive will rise to at least $80 next year,” an aluminum trader said.
Current queue-based rent capping (QBRC) rules stipulate full rent is payable for 30 days, half rent for 20 days and no rent after 50 days. The LME is proposing to change that to full rent payable for 80 days by next November and no rent thereafter.
Metal entering the LME’s global storage network, made up of 500 warehouses in 34 locations, is issued with a title document. That metal is then “on LME warrant”.
Costs of storing aluminum generally in Malaysia are about 8 U.S. cents a tonne compared with the 56 cents a tonne ISTIM charges to store metal under LME warrant.
ISTIM’s LME warehouse metal stocks in Johor rose to 186,196 tonnes in November from 103,796 tonnes in October, while those in Port Klang climbed to 290,650 tonnes from 183,975 tonnes.
The data also showed an 11-day queue for taking out metal from ISTIM warehouses in Port Klang.
The market had been expecting large deliveries of aluminum to LME-approved warehouses because of a premium for nearby against metal for delivery at a future date, which appeared at the start of November.
Premiums or backwardations typically appear when metal sellers offer higher prices because they need to deliver against maturing contracts.
The premium for the cash over the three-month contract rose to $22 a tonne last week, its highest since July 2018, while the premium for the December contract against the January contract climbed above $17 in early November.
Reuters | LONDON