(Repeats July 17 column with no changes. The opinions expressed
here are those of the author, a columnist for Reuters)
By Andy Home
LONDON, July 17 (Reuters) - Whoever took all the lead out of
the London Metal Exchange (LME) warehousing system in the second
quarter has just been kind enough to return it.
A total 50,475 tonnes of the heavy metal were placed on
warrant in the South Korean port of Busan earlier this week.
It represents the largest piece in the puzzle that started
on March 20 this year, when 98,350 tonnes of lead, or 41 percent
of all LME-stored stocks, were cancelled in preparation for
At 217,900 tonnes LME stocks are now pretty much back where
they started the year.
So is the price. Benchmark three-month metal is
currently trading around $1,835 per tonne, down just 2 percent
from the start of January.
Lead’s prospects look as unexciting now as they did back
then with China, the great driver of all things metallic, having
shifted from net importer to marginal net exporter of lead a
couple of years ago.
The International Lead and Zinc Study Group assesses lead as
being in small 7,000-tonne surplus over the first five months of
But whoever was behind the global lead raid has had their
While stocks have been on a world tour, the price has
enjoyed its own mini boom-bust cycle, making it as high as
$2,162 in May before tumbling all the way back down again.
Spreads have been all over the place, the
cash-to-three-months period trading out to $15
backwardation, also in early May, which is the tightest it’s
been in a couple of years.
There has been money to be had in both options and physical
premiums and somewhere in the mix is the underlying cost of
storing all that lead.
Not bad for shuffling 100,000 tonnes or so of metal around.
This is how to have fun in a bear market. When outright prices
are doing nothing other than grinding steadily lower, storage
costs, spreads and premiums are where the action is.
It’s been an overarching theme in the aluminium market ever
since the Global Financial Crisis and helps explain the
continuous ebb and flow of LME zinc stocks in New Orleans.
LOST AND FOUND
It’s worth recalling that the LME “Street”, or at least that
small part of it that tracks the lead market, was always
convinced that the metal drawn out of the system after those
March cancellations was heading for South Korea.
The only missing information now is which warehouse company
was the recipient of the missing lead.
Take your pick from Steinweg, CWT Commodities, H&M Metal
Warehousing, Henry Bath, Metro (Other OTC: MTRAF - news) and both Pacorinis, the one owned
by Glencore (Xetra: A1JAGV - news) and the one which originally sold its warehousing
business to Glencore but which has since re-entered the LME
Those in the know will already know. The rest of us will
have to wait for the LME’s next monthly report showing the
breakdown of stocks by warehousing company.
The latest report helped answer another part of the lead
riddle, namely the warranting of 36,500 tonnes at the Dutch port
of Vlissingen last month.
Vlissingen has been dominated by Pacorini, the Glencore one,
for so long that the easy inference was that it must have been
on the receiving end.
However, while 52,450 tonnes of metal were warranted at
Pacorini last month, that corresponds perfectly with the inflow
of aluminium at Vlissingen.
Rather, it was Worldwide Warehouse Solutions (WWS), owned by
Noble Group, which saw its registered stocks jump by, yes, you
guessed it, 36,500 tonnes. Prior to that WWS held just 618
tonnes of LME-registered metal at Vlissingen.
Another curiosity in terms of lead stocks has been the flow
of 4,450 tonnes onto warrant at the recently-listed port of
Moerdijk, where the only listed operator is Independent
Commodities Logistics (ICL).
A red herring maybe?
But the combined warranting activity at Busan, Vlissingen
and Moerdijk has totalled 91,425 tonnes, which roughly tallies
with those March cancellations, after factoring in the shuffling
of metal back onto warrant at the Spanish locations of Bilbao
AFTER THE QUEUES
The boost to warranted stocks at WWS in Vlissingen and ICL
may well herald a new chapter in the LME warehousing space.
The business of LME warehousing has been dominated by
load-out queues in recent years, a model first pioneered by
Metro at Detroit and subsequently finessed by Pacorini at
The LME, however, has been targeting the queues with its
load-in-load-out formula, which has just been tightened further
to the point that the exchange now expects queues to fall below
its targeted 50-day threshold in May next year.
Moreover, a new barrage of measures, including lifting
stipulated load-out rates and capping rent on metal locked in
queues is intended to prevent others trying to build future
What this means, given no evidence of underlying deficit in
markets such as aluminium, zinc or indeed lead, is that there is
a whole lot of metal leaving Detroit and Vlissingen in search of
Many have seen an opportunity in that dynamic, witness the
number of new companies that have registered to store LME
warranted metal, companies such as ICL at Moerdijk.
More warehousing competition is decidedly a good thing for
LME users but there is also the possibility of a round of
“warehouse wars” as new players vie to grab their piece of the
Since they can’t trade directly themselves, they have to
form alliances of convenience with merchants to actually get the
It’s precisely this sort of warehouser-merchant combination
which is believed to have been behind the March lead heist. The
warehouser gets its metal and the merchant gets its fun on the
Expect more of the same going forwards.
Indeed, it’s noticeable in this morning’s LME stocks report
that 6,250 tonnes of the lead just delivered into Busan has
Huh! Maybe the great lead stocks shuffle isn’t over just
Just remember, though, that fighting over who stores metal
is predicated on the fact that there is lots of metal to store
in the first place. It’s a way of making money in bear markets,
not bull markets, where stocks are drawn down to plug
supply-demand gaps rather than to sit in other warehouses.
(Editing by David Evans)