According to data released by the London Metal Exchange earlier this week, the Malaysian warehouse facilities owned by ISTIM UK house over one third of its total aluminium stock as of the end of last month.
Per LME’s numbers, ISTIM’s warehouses in Johor and Port Klang held a combined total of 476,846 metric tons by November’s end, up by 213,275 metric tons on the month. That number represents 35 percent of the LME’s overall total of aluminium stock, which currently stands at 1.27 million metric tons.
According to aluminium industry sources who spoke to Reuters on condition of anonymity, a sizable portion of that total is housed under deals that have ISTIM share the rent with the company who owns the aluminium under storage.
Reuters indicates that ISTIM’s business model is centered around queues for removing the metal from storage and from rent associated with storing the metal. ISTIM operates only the warehouses; it does not provide logistical services.
Excessively long queue wait times have been a thorn in the side of the LME for several years. The Exchange took action 5 years ago after wait times to remove aluminium from warehouses in Detroit reached two-year highs, leading to complaints by buyers of unnecessarily-high prices for the warehoused aluminium.
Per Reuters’ sources, LME expects to leverage long wait times into an increased use of rent arrangements to encourage metal storage as it increases incentives for warehouses to store the metal.
“Incentives on aluminum in Malaysia are around $60 a tonne now, when the new LME rent rules come into effect, that incentive will rise to at least $80 next year,” an unnamed industry source explained to Reuters.
At present, the wait time to retrieve metal from ISTIM’s Port Klang warehouse is 11 days. ISTIM charges about US$0.56 per metric ton for metal stored under LME warrant, which is about US$0.48 per metric ton above the storage price for non-LME aluminium.
Current rules state half rent is to be paid after 20 days, full rent after 30 days, and no rent after 50 days. The LME is mulling bumping full rent to 80 days, then no rent beyond that, next November.