UPDATE 1-Trafigura says has no plans to sell warehousing unit

Tue Dec 10, 2013 12:14pm EST

* Rumours circulated that Trafigura put NEMS up for sale

* Traders have logistical reasons for owning warehouse firms

* Trafigura not as successful in profiting from queues-source (Adds detail, background, comments)

By Eric Onstad

LONDON, Dec 10 (Reuters) - Commodity trader Trafigura said it had no plans to sell its warehouse operations, responding to speculation it wanted to spin off the business after the London Metal Exchange (LME) tightened rules to reduce backlogs in the sector.

Trafigura bought warehousing company North European Marine Services (NEMS) in 2010 and later consolidated all of its warehousing and logistics activities into its subsidiary Impala.

The LME, the world's biggest marketplace for industrial metals, detailed a package of proposals in November to slash queues to access metal following complaints, lawsuits and regulatory pressure.

The new regulations to take effect from April have the potential to reduce profits for warehouse companies, which have generated rental income from metals caught up in backlogs.

JPMorgan Chase & Co has been trying to sell its Henry Bath metals warehousing unit but has not found a buyer. A source close to the matter said last month that Goldman Sachs planned to resume talks with parties interested in its warehousing business, Metro International Trading Services.

Industry sources said talk had recently circulated that NEMS was up for sale too.

"I can confirm that is absolutely not the case," Trafigura spokeswoman Victoria Dix said on Tuesday. "NEMS is not for sale, and it remains a wholly owned part of the Impala group."

Simon Collins, head of Non-Ferrous and Bulk Commodities at Trafigura, said the company welcomed the LME's "bold" reforms to warehousing policy.

"These decisions will make a strong and sustained contribution to the smooth running of the LME system once they come into force," he said in an emailed statement.

ADVANTAGE FOR TRADERS, PRIVATE FIRMS

U.S. banks such as JP Morgan and Goldman Sachs are under pressure from U.S. regulators regarding their involvement in the physical commodities business, including warehouses.

But commodity trading companies are not affected by those regulatory issues.

"Certainly I don't see any of either Glencore or Trafigura selling any warehouses. It wouldn't make sense," said an analyst who declined to be named. "Glencore is a physical producer of practically every metal in fairly substantial size with Xstrata, and for Trafigura it's a core part of their business."

A trader who specialises in LME warrants, ownership documents for warehouse inventories, said: "As a private company, Trafigura may be in a better position to operate a warehouse company than some others in the market."

Glencore Xstrata owns warehouse company Pacorini, which is very active in the Dutch port of Vlissingen, which holds over 2 million tonnes of aluminium and has some of the longest queues among LME-registered warehouses.

The trader said sale rumours may have been sparked by reduced activity at Antwerp, the location where NEMS is most active.

The quantity of LME metals stored at Antwerp has shrunk by 40 percent to 253,628 tonnes since July 1, when the LME released initial proposals regarding its warehouse regulations.

A source in the warehousing sector said NEMS was not as successful in creating queues and generating income from that strategy as rivals such as Goldman and Glencore.

Trafigura "realised that there is this business model of making a queue, so they tried to make one as well," said the source who declined to be named.

"But they were a bit late to the game, and that made it difficult for them. And had the LME rules not changed, they may have succeeded."

Some market participants have said trading firms were acting within their rights and blamed long queues on the complexity and cost of moving aluminium out of vast sheds in ports.

But growing criticism of the LME's storage network led the exchange last month to slash minimum queues for metal and beef up its powers to act against market abuse. (Additional reporting by Susan Thomas; editing by Veronica Brown and Tom Pfeiffer)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.