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RPT-Australia's Macquarie muscles in on metals warehousing space
February 14, 2013 / 8:36 PM / in 5 years

RPT-Australia's Macquarie muscles in on metals warehousing space

(Repeats story published late Thursday; no change to text)

* Bank buys stake in Liverpool-based Scale Distribution

* Macquarie, others looking to bypass LME delivery backlogs

* Macquarie employee on Scale’s board

By Melanie Burton and Susan Thomas

SINGAPORE/LONDON Feb 14 (Reuters) - Australia’s Macquarie Group has bought a stake in a small British warehousing company, sources with direct knowledge of the matter said, in part to sidestep queues and other problems plaguing the London Metal Exchange’s warehousing system.

The bank has taken a minority stake in Scale Distribution, which runs an LME-listed warehouse in Liverpool, the sources said.

Paul Plewman, Macquarie’s head of Fixed Income, Currencies and Commodities for Europe, the Middle East and Africa, joined the board of Scale Distribution in July, records from Companies House, the United Kingdom’s business registry, show.

“The company they already own is a warehouse company called Scale Distribution. They are based in Liverpool, but I also hear they have been picking up some space in the U.S.,” one London-based trader said.

“We had heard they have been working on a deal for two or three years. It was a long time coming. Interestingly enough, about six weeks ago, they said they have a big load of metal coming,” a U.K.-based warehousing source said.

Macquarie’s stake pales in comparison to the ranks of Goldman Sachs, JP Morgan, Glencore and Trafigura which have all snapped up global warehousing companies in the wake of the 2008 financial crisis.

Critics argue that warehouses tied to trading houses and banks are taking in more metal than they deliver and this has artificially constricted supply and inflated premiums, or surcharges, which consumers pay to get metal.

And because warehouses have guaranteed rent, they have fought off industrial users by paying juicer incentives to attract metal, reinforcing their already powerful position.

The practice has proven controversial, with Hong Kong Exchanges and Clearing Chief Executive Charles Li saying last July it could have caused the exchange to walk away from its $2.2 billion takeover of the LME, clinched in December.

“It seems logical,” said a metals industry source in Europe regarding Macquarie’s move. “There are independent LME-registered warehouses out there. However, the market has been totally skewed by these games, it’s impossible to get metal.”

Sources said Macquarie’s strategy was to protect its customer business from warehouses at ports controlled by the big players - and that the bank is just one of several mid-tier banks and trading houses taking a second look at securing their own storage.

“We’ve looked at warehousing investments on and off over the years, but the reality is... we’re working outside the LME space now anyway, where warehouses can do those services very competitively,” a London-based executive at a trading house said.

“Never say never, we may well invest in some space at some point,” he said. “There are very attractive returns if you can get metal, but that’s the big issue,” he added. (Editing by Jason Neely)

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