New Orleans Among Few Cities Approved For Warehousing Metals
New Orleans is one of only 37 cities in the world approved by the London Metals Exchange to store inventory, which makes owning one of the 600 approved warehouses a good way to take advantage of a market with limited supply and constant demand.
About the London Metals Exchange
Vast quantities of metals are traded at the London Metals Exchange, where buyers and sellers of metals either speculate or just protect their business from rapid price changes. In 2011, the exchange traded 146.6 million lots, equivalent to $15.4 trillion annually and $61 billion on an average business day. The Exchange provides a forum for all trading activity and as a result helps to ‘discover’ what the price of material will be months and years ahead. This helps any business using these metals to plan forward in a world subject to severe and rapid price movements.
The London Metals Exchange offers a range of futures and options contracts for non-ferrous, minor metals and steel, including:
Contract |
Lot Size |
|
| Aluminum | 25 tons | |
| Aluminum Alloy | 20 tons | |
| Copper | 25 tons | |
| Lead | 25 tons | |
| Nickel | 6 tons | |
| Tin | 5 tons | |
| Steel Billet | 65 tons | |
| Molybdenum | 6 tons | |
| Cobalt | 1 ton |
Source. www.lme.com
From Contracts To Physical Warehousing
Delivery against London Metals Exchange contracts is in the form of warrants, which are bearer documents of title enabling the holder to take possession of a specified parcel of metal at a specified London Metals Exchange approved warehouse. Each London Metals Exchange warrant is for one lot of metal, the tonnage of which is dependent on the contract specification. The front of the London Metals Exchange warrant displays information about the parcel of metal, including its brand, the exact tonnage, the shape and the location. Warrant holders are responsible for payment for storage of material.
Warrants are issued by the warehouse companies at the request of the owner of the metal once it is properly stored in a London Metals Exchange approved warehouse and the warehouse company has ensured conformity with the Special Contract Rules for that metal. These rules include, but are not limited to, the technical specification of the metal, its shape, weight and bundling.
Ultimately, only a relatively small percentage of London Metals Exchange contracts actually result in delivery, as the vast majority of contracts prove to be hedging contracts bought or sold back before falling due for settlement. As a result, the deliveries that do take place, either in or out of warehouse, will reflect the physical market demand and supply, and the information included in the London Metals Exchange’s daily stock reports can play a major part in the market’s assessment of the world’s metals prices.
London Metals Exchange Approved Warehouses
The London Metals Exchange does not own or operate warehouses and nor does it own the material they contain, but authorizes warehouse companies and the warehouses they operate to store approved brands on behalf of warrant holders. Warehouse companies may issue warrants, through their London agent, for material delivered into their approved warehouses. The exchange approves and licenses a network of warehouses and storage facilities around the world which must meet strict criteria before they are approved for the handling of metals. The network is meant to even out swings in volatile metals markets, because during recessions, surplus metal can be stored until economies recover, and when demand picks up the metal can be released.
More than 450 brands of material from over 60 countries are approved as ‘good delivery’ against contracts, and material stored in warehouses must be of an approved producer, such as Freeport McMoran Copper & Gold, conforming to the specifications covering quality, shape and weight as defined by the special contract rules of the London Metals Exchange. London Metals Exchange will only accept applications for the listing of approved warehouses from approved warehouse companies, and inspection of premises offered for warehousing occurs prior to any listing.
60 of the 600 warehouses approved by the London Metals Exchange, which amounts to 10% of the world supply, are based in New Orleans and are listed below:
Active Listed Approved New Orleans Warehouses
| 410 Josephine Street |
| Warehouse 6 |
| Warehouse 1 |
| 1009B McDermott Road |
| 1009C McDermott Road |
| Compound France Road |
| 5630 Douglas Street |
| 500 Louisiana Avenue |
| 1930 Japonica Street |
| 2601 Decatur Street |
| 2520 Decatur Street |
| 5300 Old Gentilly Road |
| 600 Market Street |
| 5632 Douglas Street |
| 561 Bonita Drive |
| 700 Edwards Avenue |
| 4501 North Galvez Street |
| 1560 Tchoupitoulas Street |
| 4300 Jourdan Road |
| 13601 Old Gentilly Road |
| 3501 Jourdan Road |
| 6101 Terminal Drive |
| Nashville Yard B |
| Warehouse B |
| Warehouse C |
| 5301 Jefferson Highway |
| 600 Edwards Avenue |
| Arabi Compound |
| Warehouse Arabi 1 |
| 5501 Jefferson Highway |
| 3720 Robertson Street |
| 5601 France Road |
| 4150 Michoud Boulevard |
| 4200 Michoud Boulevard |
| 1770 Tchoupitoulas Street |
| 4400 Florida Avenue |
| 402 Alabo Street Yard |
| Warehouse 500 Edwards |
| 808 Dakin Street |
| 1000 Dakin Street |
| Warehouse 4 |
| 600 St George Avenue |
| 1 Alabo Street Wharf |
| 5050 Almonaster Avenue |
| 6040 Beven Street |
| 1000 Edwards Avenue |
| Warehouse 5 |
| 440 Josephine Street |
| 5725 Powell Street |
| 5042 Bloomfield Street |
| 325 Hord Street |
| 1645 Tchoupitoulas Street |
| 1601 Tchoupitoulas Street |
| Warehouse 1A |
| 2940 Royal Street |
| 601 Market Street |
| Warehouse 2 |
| Warehouse 19 |
Source. www.lme.com
London Metals Exchange Policy For Warehouses
There are 14 requirements for approved warehouses:
1. Road connection to major highways is mandatory.
2. Rail loading facilities adjacent to the warehouses will be required if, in the opinion of the London Metals Exchange, this service is routinely required by the metals trade. Warehouses without direct rail connections in such locations may be considered for listing if it can be demonstrated that adequate shuttle services to the rail head are provided by the warehouse company at its own cost and risk.
3. Water loading facilities adjacent to the warehouse or otherwise will be treated in the same way as rail.
4. For each 2500m2 of space there must be access by means of an operational door for vehicle loading/unloading, with a minimum of 2 doors per warehouse.
5. The minimum daily delivery tonnage must be in accordance with the table below. Where the delivery requests exceed the minimum daily delivery tonnage for the capacity on the table below, the London Metals Exchange will regard the standard as applying over the number of days necessary to complete the deliveries, as per the table (e.g. if the requests for the delivery of 2000 tons apply to a warehouse’s location capacity of 2500 sq. meters, the standard would be to deliver in 3 days with no reference to the performance on any one of those days). The London Metals Exchange would, however, expect the warehouse company to act reasonably when allocating the tonnage delivered out in each of those days. The daily delivery tonnage is for deliveries out only and does not include deliveries in.
Warehouse Company’s Authorized Space Per Location, In M2 |
Minimum Daily Delivery Tonnage For All Metals |
| 2,500 | 800 tons |
| 5,000 | 1,200 tons |
| 7,500 | 1,500 tons |
Source. www.lme.com
6. The London Metals Exchange recognizes that it may not be possible to achieve exactly the same delivery rates if delivery into containers, vans or railcars is required. In assessing a warehouse company’s performance, the circumstances will be taken into account.
7. Once all formalities permitting delivery have been completed the warehouse shall prioritize all requests for deliveries out on the basis of 48 hours’ notice and strictly in the order in which they are received, unless the Warrant holders seeking cancellation agree otherwise.
8. In addition to their rent and FOT (free on truck) charges, warehouse companies are also required to supply the London Metals Exchange with a comprehensive set of charges for delivery out of warranted metal and will undertake to immediately advise the London Metals Exchange of any changes. Warehouse companies are also required to submit to the London Metals Exchange compulsory port tariffs for the import and export of metal.
9. There should be no charges above the FOT for returning the metal to the warehouse companies approved and nominated loading berths within the location where the London Metals Exchange discerns a need for such transportation; the unloading of such metal from the truck being for the receiver’s account.
10. Similarly there should be no charges above the FOT for returning metal to the nearest railhead where the London Metals Exchange discerns a need for such transportation. With the exception of the FOT charge and port tariffs for the export of metal the warehouse company may not impose any compulsory additional charges when delivering metal out.
11. In the event that an existing approved warehouse/warehouse company does not appear to meet the London Metals Exchange criteria, there will be an initial consultation with the warehouse company concerned.
12. If the warehouse company can demonstrate that it will upgrade facilities or work practices to meet the London Metals Exchange’s new standards, the London Metals Exchange will consider the appropriate amount of time to allow for such a process. Warehouses could, for example, be given 6-12 months to upgrade their facilities or relocate to a more suitable building within the location, but this would be determined on a case by case basis, according to the circumstances.
13. If after consultation the warehouse company is unwilling or unable to upgrade its facilities or work practices to meet London Metals Exchange standards, the exchange retains the right to restrict the capacity of that warehouse company in that location or even delist it.
14. Prior to implementation, the London Metals Exchange would give the necessary notice of any action to be taken to the warehouse company and allow for formal representations to be made.
Rates the owner of LME warranted metal will payto the listed warehouse company to store their metal-Per Ton Per Day In US Cents |
||||||||
| Warehouse Company | Copper | Lead | NASAAC | Nickel | Primary Aluminum | Tin | Zinc | Steel |
| CWT Commodities (USA) LLC | 41 | 41 | 46 | 49 | 45 | 46 | 42 | / |
| Henry Bath LLC | 39 | 37 | 43 | 48 | 43 | 43 | 39 | 35 |
| Metro International Trade Services LLC | 41 | 41 | 46 | 49 | 45 | 46 | 42 | 39 |
| NEMS (USA) Inc | 41 | 41 | 46 | 49 | 45 | 46 | 42 | 40 |
| Pacorini Metals USA LLC | 41 | 41 | 46 | 49 | 45 | 46 | 42 | 40 |
| Worldwide Warehouse Solutions LLC | 41 | 41 | 46 | 49 | 45 | 46 | 42 | / |
Warehouse Takeovers
London Metals Exchange rules stipulate that warehouses must deliver a certain amount of metal each day. However the rules apply not to each warehouse but to each city that a company has warehouses in. At the moment, a warehouse operator needs to deliver just 1,500 tons a day per city, whether it owns one warehouse or dozens. In Detroit, that means each warehouse needs to release only 79 tons of aluminum a day. At that rate, it would take two years to clear the stocks held by Goldman’s Detroit warehouses.
The backlog sparked outrage last year, prompting the London Metals Exchange to task London-based consultancy Europe Economics to look into its rules. Starting in April, 2012, the minimum delivery rate will double to 3,000 tons a day.
The cash flow of the business has led to a wave of takeovers. Three of the four largest warehouse operators were bought by Goldman, JPMorgan and Baar, Switzerland-based Glencore International Plc in 2010. Metro International added at least 17 warehouses since it was bought by Goldman in February 2010,and JPMorgan took control of Henry Bath & Son Ltd. in July 2010 as part its $1.7 billion acquisition of units of RBS Sempra Commodities.
Glencore, the largest listed commodity trader, said it agreed to buy Pacorini Metals in August 2010 and Hong Kong-based Noble Group Ltd. (NOBL) acquired Delivery Network International LLC the following month. Trafigura Beheer BV, based in Amsterdam, said it bought North European Marine Services Ltd. in March 2010.
Sources:
www.bloomberg.com
www.reuters.com
www.LondonMetalsExchange.com
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