UPDATE 1-Trafigura becomes latest to profit from metals storage queues

Fri Nov 16, 2012 9:27am EST

* Backlog of up to 9 months to access metal in Antwerp

* Antwerp stocks jump by five times to 473,372 T

* Antwerp latest in string of warehouse hubs with queues

By Eric Onstad

LONDON, Nov 16 (Reuters) - Manufacturers must wait up to nine months to obtain metals from warehouses in Antwerp controlled by commodity trader Trafigura, which has in recent months joined Glencore and Goldman Sachs in profiting from storage backlogs, industry sources said.

Antwerp is the latest of the warehousing centres to provoke controversy for generating profits for trade houses and banks at the expense of creating logjams for consumers.

The Belgian port city and other hotspots are likely to figure in a European probe into the metals warehousing sector after complaints of artificial shortages, long waits to get metal and high surcharges.

The volume of metal stored in Antwerp warehouses monitored by the London Metal Exchange (LME) has surged by more than five times to nearly half a million tonnes in less than two months, and industry sources said the bulk of it is in facilities controlled by Trafigura.

More metal is likely to be heading for storage in the Belgian port city, which would keep waiting times high, the sources said.

"At Antwerp you've got another warehouse location where you have a queue being created, effectively removing those units behind the queue from the spot market," said analyst Leon Westgate at Standard Bank in London.

"It's not against the rules; it is just making the most of some the quirks in the LME warehousing system. They're the same sort of techniques that have been used elsewhere and have implications for premiums."

Westgate did not comment on the identity of companies active in Antwerp warehousing.

PREMIUMS SOAR

Backlogs in LME warehouse locations, together with financing deals that also tie up material, have meant that much of the metal in the warehouses is not available to consumers.

This has sparked soaring premiums over the LME spot price as manufacturing companies scramble to source physical metal.

The duty-paid physical premium in Rotterdam above the LME cash price has soared 20-fold since early 2009 from $10 a tonne in early 2009 to $205, touching a record of $270 in September.

Trafigura owns North European Marine Services (NEMS), which has expanded this year in Antwerp to become the biggest metals warehousing company in the Belgian port city.

Trafigura said metals distribution was a key part of its business and that it developed Antwerp as one of NEMS' global hubs, but it could not comment on LME stocks movements. Further expansion is planned in southern Europe, it said in an emailed statement in response to queries from Reuters.

The European Commission, meanwhile, has started a preliminary investigation into wait times at LME-monitored warehouses and resulting metal surcharges, sources with knowledge of the matter said earlier this week.

FOLLOWS LEAD OF GOLDMAN, GLENCORE

Regulations of the LME, which is being acquired by Hong Kong Exchanges and Clearing, allow companies operating warehouses in the global network it registers to release only a small fraction of their inventories each day.

As industrial demand for metal exceeds the trickle leaving warehouses, some consumers are now waiting months, sometimes over a year, to get deliveries of aluminium and zinc. Backlogs in these metals are also affecting some deliveries of others such as steel and lead.

The LME, the world's biggest marketplace for industrial metals, proposed on Thursday to revise its rules to require warehouse firms to deliver out slightly higher tonnages, but analysts said this would not have a major impact on reducing queues.

For the warehouse companies, the backlogs are lucrative as the metal waiting to be delivered earns storage fees.

The sharp build-up in stocks in Antwerp follows a pattern in other warehouses with long waiting periods such as Dutch port Vlissingen, where Glencore subsidiary Pacorini is the main operator, and U.S. locations Detroit and New Orleans.

The best known is Detroit, which is dominated by Goldman Sachs' warehouse subsidiary Metro.

"Trafigura have seen the revenue income that can be generated in Detroit and Vlissingen, and it looks like they want a piece of the action as well," said a trader who specialises in warehouse inventories.

TRAFIGURA BIGGEST IN ANTWERP

Since July, NEMS has registered 13 warehouses in Antwerp with the LME, bringing to 16 its storage facilities in the city.

Trafigura said, "NEMS does have space in Antwerp as a key European distribution hub, as we do now in most global hubs, such as New Orleans, Baltimore and Singapore. Distribution is a key part of our business, and we intend to develop more capacity in southern Europe to cover areas of metal consumption."

Industry sources say NEMS was behind a sharp build-up of LME stocks in Antwerp in recent months. Since October, total stocks of steel, copper, aluminium, zinc, lead and nickel have jumped from 85,090 tonnes to 473,372 tonnes.

In some metals the rise has been more dramatic. Lead stocks soared from 2,275 tonnes to over 100,000 tonnes over a roughly two-week period in October. Zinc stocks in Antwerp jumped from zero to over 150,000 tonnes during the same fortnight.

Steel stocks of 66,235 tonnes in Antwerp make up three quarters of global LME inventories of the key industrial metal.

Shortly after the build-up, large cancellations of warrants - ownership documents for inventories - began appearing in Antwerp.

Cancellations are supposed to occur when a party wishes to take delivery of metal, but since only small amounts are delivered each day under LME rules, backlogs are created.

Based on the LME load-out rates, the backlog at Antwerp extends to August 2013, or nine months, for metal added to the back of the queue, industry sources said.

When asked whether the NEMS Antwerp warehouses had queues, Trafigura said, "In line with LME regulations, NEMS is not allowed to comment on LME stocks or stock movement."

To maintain the queue, Trafigura would need to keep feeding more metal into warehouses as metal is removed, traders said.

"I wouldn't be surprised to see quite a bit more zinc coming into Antwerp, certainly starting in the New Year," said another trader, adding that the metal would probably come from Namibia.

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