Cost Of Storing LME Aluminum In Detroit To Jump 10% From April

The cost of storing aluminum in London Metal Exchange- approved warehouses in Detroit has soared by nearly 10% following the exchange's decision to force a Goldman Sachs Group Inc. (GS) subsidiary to double the rate at which it delivers metal out of its facilities there.

The new rent of 45 cents a ton of aluminum will be effective from April 1, the same date as rules stating that warehousing firms must lift the minimum daily delivery rate to 3,000 tons for any warehouse holding more than 900,000 tons of metal come into effect. LME members were notified of the increase in a notice earlier Friday.

The LME's warehousing system has been in the spotlight through 2011 after concerns were raised over delays in accessing aluminum in the U.S., prompting the exchange this summer to raise the minimum amount of metal that must be delivered out of warehouses every day.

When the new rules were announced in July, there was only one company in the LME's network of approved warehousing firms that had over 900,000 tons of metal in one location: Metro International Trade Services, owned by Goldman Sachs.

The queues to secure aluminum stored at Metro's Detroit facilities reached eight months earlier this year. The queues haven't vanished: over a quarter of the aluminum held in the LME's warehousing system is stored in Detroit--1.3 million tons, out of a total 4.97 million tons. Warehouses owned by Metro store over 900,000 tons of this. It would take 600 days, or 120 working weeks, to deliver out 900,000 tons.

The remainder of aluminum in Detroit is stored in facilities owned by Glencore International's (GLEN.LN) Pacorini Metals and Noble Group Ltd.'s (N21.SG) Worldwide Warehouse Solutions.

But now Glencore's Pacorini has over 900,000 tons in its facilities in Vlissingen in the Netherlands, where rent will also rise by 10% to 45 cents a day from April. It's a massive increase since the start of the year, when aluminum stocks there totaled just 62,250 tons.

Storage capacity in Vlissingen is set to rise further because Pacorini is building a series of new sheds there on land adjacent to a port that was previously leased by Geneva-based Klesch Group. Not all the facilities are expected to be used for aluminum, however, nor all to be used by Pacorini.

The critical mass of having more metal in these warehouses means Glencore can afford to pay more to attract fresh metal, allowing it to compete with Metro and have greater influence over European premiums, industry participants say.

Goldman Sachs wasn't immediately available for comment and Glencore declined to comment.

At the same time, Metro has increased the cost of loading metal out from Detroit by 9% or $3 a ton to $35.95/ton. The loading out cost in Vlissingen has risen by 3.5 euros or 16% to EUR26/ton.

The LME doesn't set the rates charged for rent or handling--they are negotiated between the warehouse and its clients. Warehousing firms have argued that upping the delivery out rate will cost more: due to size and weight factors, a truck can carry around just 20 tons of aluminum.

But some industry traders and merchants say that both costs are already vastly in excess of non-LME storage costs, and that the further increase isn't justified.