LONDON : Energy and commodities trader Vitol is attempting to reduce its storage costs with plans to remove significant amounts of aluminium from London Metal Exchange (LME) warehouses in Port Klang, Malaysia, three sources familiar with the matter said.
LME approved warehouses charge 56 U.S. cents per metric ton to store aluminium in Port Klang, about five times more than rent charged for metal outside the LME’s warehousing system.
Vitol, which declined to comment on its plans, is ramping up its presence in global metals markets after a previous foray into base metals ended in 2014. It maintained a presence in alumina, which is used to produce aluminium, until 2018 and in iron ore until 2017.
LME queue-based rent capping (QBRC) rules stipulate a warehouse company can only charge fees to store metal for up to 80 days after the firm that owns it has given notice of its intention to take delivery. No rent can be charged after 80 days, so companies in the queue for longer pay no charges.
Metal earmarked for delivery at LME registered facilities in Port Klang, known as cancelled warrants, jumped more than 40,000 metric tons on Monday. The LME gives only a monthly breakdown of inventories by warehouse firm, but the sources said Vitol accounted for much of the cancelled metal on Monday.
Cancellations by Vitol were at warehouses owned by ISTIM UK, where at the end of November last year there was a wait of 194 days to withdraw the metal.
ISTIM declined to comment.
Sources said the long wait was partly due to other companies deploying the same tactic to cut their storage costs.
Nearly a decade ago, after a consultation on warehousing rules, the LME highlighted market concern about QBRC being used to get free storage at the expense of warehouse firms.
Vitol may also have cancelled the aluminium warrants to take delivery of the metal and fulfil contractual obligations to sell to end-users at some future date, the sources said.
Benchmark aluminium prices rose after the stock data was published on Tuesday. Aluminium is vital for transport, construction and packaging.
Cancelled warrants in LME warehouses in Port Klang amounted to 273,900 tons or 66 per cent of the total 414,675 tons on Wednesday.
Overall, aluminium stock warrants in LME warehouses totalled 619,275 tons on Jan. 8, of which 60.6 per cent is waiting to be delivered out.
The aluminium in LME warehouses in Port Klang is sought after as most of it was produced in India rather than Russia. Many Western consumers have refused to buy metal produced in Russia, after its invasion of Ukraine in February 2022.
The LME banned Russian metal produced on or after April 13, 2024 from its system to comply with Western sanctions. But there is still a lot of Russian metal in the LME system, much of it in the South Korean Port of Gwangyang.
