* Coffee, cocoa warehousing replicated metals business model
* Complaints of high rents, long delays, steep charges to
* ICE says addressing warehousing practices a top priority
By Sarah McFarlane
LONDON, Nov 14 The window is closing on
lucrative - and much-resented - practices that some
exchange-licensed coffee and cocoa warehouses have copied from
the metals market, as exchanges step in to pre-empt scrutiny
Complaints common in the metals markets such as high
warehousing rents along with long delays and steep charges to
withdraw material have recently been heard from the coffee and
Regulators have already stepped in to look at metals
warehousing practices in Europe, and now exchanges are taking
action against at least two years of hoarding activity in
coffee, and more recently cocoa, before the regulators train
their spotlight on these markets, too.
Traders of coffee and cocoa have complained of the expense
and delays involved in removing beans from some warehouses in
Antwerp, where the majority of exchange stock is stored.
Some storage companies make money partly by charging low
rent to attract material and higher rates to those taking
delivery to retrieve it, while at the same time limiting access.
Exchange stocks back the futures contract, and when a buyer
takes delivery of these beans it has no say in where they are
stored, so cannot avoid warehouses operating such a business
model. The new owner of the beans pays the rent until it is able
to either move them to another warehouse with cheaper rent, use
them, or sell them on, while the warehousekeeper has no
incentive to move out stock.
InterContinentalExchange's acquisition of the Liffe
coffee and cocoa contracts, along with recent regulatory and
legal pressure on The London Metal Exchange's storage system,
have helped prompt action.
"It's coming to a head, and people are drawing comparisons
with what's going on with aluminium. You can draw comparisons
with congestion at one or two coffee and cocoa warehouses,"
Michael Overlander, chief executive of brokerage Sucden
Financial, told Reuters.
In metals, warehousing complaints have resulted in
U.S.-based lawsuits by consumers, distributors and others
alleging aluminium price-fixing and anti-competitive behaviour
by some investment banks, large trading houses and the LME.
"It doesn't take a rocket scientist to see what's going on
at the LME and see maybe we're (coffee and cocoa) susceptible to
the same kind of criticism, because the models are somewhat
similar, while not identical," a coffee trader said.
Last month ICE said that once it had acquired NYSE Liffe
soft commodity contracts, warehousing practices in coffee and
cocoa were among the top items to be addressed, while NYSE Liffe
has already announced a warehousing review.
The deal completed on Nov. 13.
"There's been a lot of trade houses that have been upset by
the amount they have been charged by warehouses when receiving
coffee, and ICE is saying they are going to take a look at it,"
the coffee trader said.
COMPARE AND CONTRAST
Manufacturers needing raw materials like aluminium have long
complained they had to wait months and pay dearly to get metal
from some warehouses overseen by the LME around the world.
They blamed the exchange for allowing big banks and trading
houses among its membership to buy warehouses and then make
money by sitting on stocks, restricting supply and charging high
rents even on metal caught up in queues to leave sheds.
Although coffee and cocoa warehouses did not experience
ownership changes to the same extent, traders said the softs
markets recognised how the practices adopted in metals gave
players a competitive edge, prompting some traders and
warehouses in cocoa and coffee to foster mutually advantageous
"They copied the LME model, and while it's been very
profitable for them, it's been a shorter cycle than the metals,"
the coffee trader said.
Delays to the delivery of certified coffee out of
Antwerp-based warehouse 4STOX NV, formerly known as Port Real
Estate NV, triggered complaints by trade houses Armajaro and
Sucre Export SA, culminating in the Competition Council of
Belgium ordering the warehouse to maintain a minimum volume of
loading out in May last year.
Other coffee and cocoa warehouses in Antwerp include C.
Steinweg Belgium NV, Commodity Centre (Holdings) Ltd, CWT
Commodities, Durme-Natie C.V.B.A, Henry Bath BV, Molenbergnatie
NV and Pacorini Antwerp NV.
The consultation launched last month by Liffe asked market
participants to give information on rents, movement-out rates
and the amount of notice given to warehouses on upcoming stock
movements. Responses were due by Nov. 13.
"It's the first time this thing has been really tackled," a
European warehousekeeper said.