KEY POINTS
- Istim Metals introduces high warehouse re-registration fees, sparking market disputes. Â
- Critics argue fees are aimed at discouraging withdrawals, impacting LME aluminum prices. Â
- LME intervenes to lower fees, but Istim remains a dominant warehouse operator.
The metals industry is again in turmoil as a new feud over storage fees at the London Metal Exchange (LME) reignites old tensions. Istim Metals LLC, led by Michael Whelan, has introduced a new warehouse fee that some claim is contributing to a significant squeeze in the aluminum market.
This controversy has drawn global traders, including Citigroup and Squarepoint Capital, as the LME faces mounting complaints from members over alleged unfair practices.
Warehouse tactics and market impact
The dispute centers around Istim Metals, which, like its predecessor Metro International Trade Services, is accused of pushing the boundaries of LME regulations to maximize profits.
Istim has introduced a new charge for re-registering metal — a fee currently set at $50 per ton, five times higher than the industry norm of $5 to $10. Critics argue that this is intended to deter withdrawals from Istim’s warehouses, which could distort LME aluminum prices.
Some LME members have lodged formal complaints against Istim with the UK’s Financial Conduct Authority, alleging that the new fee hampers their ability to access metal backing LME contracts.
The LME has since intervened, and Istim reduced the fee, but it remains significantly above industry standards. For Istim, these actions represent the latest move in a long history of leveraging warehouse operations to optimize profitability.
Warehouse companies like Istim play a crucial role in the LME ecosystem, with the ability to influence the supply and pricing of metals such as aluminum, copper, and nickel.
According to Mining.com, over the years, Istim and similar operators have capitalized on regulatory loopholes to retain control of vast amounts of metal, making it challenging for others to move stock.
History of warehousing controversies
The situation is reminiscent of controversies in 2002 and 2012, where Metro, under Whelan’s leadership, faced backlash for orchestrating delays in aluminum deliveries. At one point, delivery backlogs lasted for more than two years, impacting global companies like carmakers and beer manufacturers, who experienced price hikes due to these storage tactics.
Today, Istim is just as significant to the LME as Metro once was, controlling roughly half of the metal in the exchange’s global storage network. Its influence has shaped the evolution of market practices, forcing rivals and the LME itself to adapt.
Some market insider view the company’s methods as profit-driven abuses of LME rules, while others admire the creative strategies used to make the most of a low-margin business.
A veteran metals trader, who once lodged a complaint against similar practices by Metro, noted, “The sad truth is everyone has learned to love it because the market inefficiencies create opportunities for profit.”
A market in flux
The aluminum market has been particularly volatile in recent months. In May, Trafigura Group deposited a significant stockpile of aluminum at the LME’s Port Klang warehouse, leading to a surge in activity. Rival players, including Squarepoint and Citigroup, moved quickly to withdraw the metal, creating a backlog that reached over nine months by August.
For buyers, long queues mean delays in accessing metal. However, LME rules allow those waiting for more than 80 days to stop paying rent, making prolonged backlogs profitable for some traders. Istim’s recent fee hikes add further complexity, raising questions about market fairness.
The ongoing disputes have put the LME in a difficult position, as it tries to balance the needs of different stakeholders while ensuring the smooth functioning of the global metals market. The exchange is also facing scrutiny over potential conflicts of interest between storage companies and major traders, given their mutual financial interests in keeping metals stored longer.
