Over the past year, warehouses in the Dutch port of Vlissingen run by Pacorini Metals, a unit of commodity trader Glencore, have mushroomed from 19 to 36, enough to house nearly 2 million tonnes of metal, about a fifth of total aluminium stocks, in an area the size of 40 football fields.
All that extra space is needed because of “financing deals” whereby traders or banks buy the metal from producers then sell it for future delivery to speculators at a profit, a market spread known as ‘contango’, when futures prices are higher than spot prices for immediate delivery.
In the meantime, it goes into the warehouses monitored by the London Metal Exchange and largely run by the same banks and commodity traders.
LME regulations allow companies operating warehouses in the global network registered by the exchange to release only a fraction of their inventories each day.
This, along with the financing deals, results in long queues for the metal and an artificial tightness in immediate supply, infuriating customers who pay rent to the warehouses while they wait, sometimes for up to a year, to get their goods out.
It’s a trick that looks set to become even more lucrative for the specialist commodities houses, as continues here