LME data shows warehouse firm Metro will charge the most to store aluminum

LONDON (Reuters) - Warehouse firm Metro International Trade Services, at the heart of a controversy surrounding queues to get metal released from storage, is planning to charge the highest rents for aluminum stocks in warehouses approved by the London Metal Exchange.

Men walk past the London Metal Exchange (LME) in London, July 22, 2011. REUTERS/Paul Hackett

Data from the LME last week showed Metro is planning rent rises of more than 30 percent for the 12 months starting on April 1 at its warehouses in the United States, Italy, South Korea and Malaysia.

Metro’s charges for aluminum jump to 72 U.S. cents per tonne per day compared with 54 cents now. The average of all warehouse rents for aluminum from April will be near 50 cents.

The company, now owned by investment firm Reuben Brothers, was one of the first to create long wait times for aluminum at its storage facilities in Detroit more than five years ago when it was owned by U.S. bank Goldman Sachs.

Some customers have had to pay rent for years, waiting for aluminum to be released from Metro warehouses in Detroit.

Metal industry sources say the warehousing firm is aiming to offset new LME rules on load-out rates and queue-based rent capping (QBRC), which could undermine Metro’s earnings.

Metro declined to comment.

Queues to get aluminum out of Metro’s warehouses in Detroit fell to 206 days in November last year from 641 days in November 2014, mainly due to measures taken by the LME to reduce waiting times for buyers.

New rules such as QBRC due to be introduced from May mean the rent payable on metal stuck in a queue for longer than 30 days drops by half and is eliminated altogether after 50 days.

Standard load-out rates from LME warehouses will also be raised again from March.

Significantly higher rents also allow warehouses to offer higher incentives such as fee discounts or waivers to attract metal. These incentives from Jan. 1, 2016, have to be reported to the LME.

The LME had previously warned that if rental levels rose too high in response to its new rules, it would consider setting fixed maximum rental rates across the board.

The exchange last week said it would investigate planned large rises in warehouse rents for 2016-2017 to see if it should cap charges.

The average stock-weighted increase for rents effective from April 1, 2016 is 10 percent, up from three percent the previous year. Free on truck (FOT) charges will rise 12 percent from two percent, the exchange said in a statement.

The announced charges “appear out of line with market comparables and as a result, the increases do not appear to be based on objective economic factors such as increased compliance costs as a result of new LME rules”, it said

Reporting by Pratima Desai; editing by Susan Thomas and Veronica Brown