According to foreign media reports on August 29, the port of Gwangyang in South Korea has become a new hub for the storage of aluminum from the London Metal Exchange (LME).
Lme warehouses registered in the city currently hold 256,650 metric tons of aluminum, accounting for 49 percent of all light metals in the exchange's global warehouse network.
At the start of the year, the Port held only 24,025 tonnes of aluminium, but heavy inflows of the mainly Russian brand metal pushed stocks above the level of Malaysia's Port Klang. Port Klang was previously the preferred storage location for the exchange.
Crucially, Guangyang now owns 70% of the live inventory in the LME system. This means that it is the last resort for anyone who needs to get their metal from the market.
On August 17, for example, the company dug 75,600 tons and then cancelled it all, possibly to prepare for the actual loading.
In the week that followed, another 54,000 tons of aluminum arrived, foreshadowing more turnover at the warehouse.
Weak demand has caused LME time spreads to swell to super contango levels, spurring investor appetite for equity financing deals. The battle of the troops will begin in Gwangyang.
Guangyang caught the spotlight
In the first quarter of this year, the LME Guangyang warehouse's aluminum guaranteed volume was 198,125 tons, most of which was delivered within four days.
Most of the inflow is Russian metals delivered by Glencore, which has an offtake agreement with Rusal, the Russian aluminium giant.
Despite not being officially sanctioned, Rusal's metals have been replaced by punitive U.S. tariffs and self-imposed sanctions by Western users opting for other brands.
Almost all of the aluminum arriving is licensed at the IStim-operated warehouse, which stored 200,425 metric tons of LME metal at the end of March.
Last year, ISTIM registered 24 new LME storage units in Kwangyang Port and currently operates 31 of the 63 LME storage units in Kwangyang Port.
Since the end of September 2022, Gwang Yang's LME storage capacity has increased by 35,000 square meters to 249,000 square meters and it is now the fourth largest exchange storage location after Rotterdam, Busan in South Korea and Port Klang.
The latter still has 407,000 sq m of LME capacity, reflecting its previous dominance in aluminium storage. At the beginning of last year, inventories at Malaysian ports reached a staggering 668,000 tonnes.
They have since fallen to 221,600 tonnes and almost all remaining stocks have been cancelled, leaving only 43,225 tonnes in spot stock.
Russian metals now dominate
The race to stockpile LME aluminium during periods of weak demand is nothing new. Port Klang is a former battleground. After the 2008 financial crisis, first Detroit, then the Dutch port of Vlissingen.
This time, however, the battle has a distinctly Russian tinge.
LME guaranteed aluminium inventories at the end of March were almost evenly divided, with Russian branded metals accounting for 53 per cent of the total and Indian branded metals accounting for 45 per cent of the total.
Port Klang's stocks were raided in May and early June, with 132,300 tonnes of aluminium cancelled on May 10 and another 68,250 tonnes taken out of circulation at the end of the month and the first week of June.
After the clearance operation in Port Klang, the proportion of Indian branded aluminium in all warrant stocks dropped to 18 per cent at the end of June, while the proportion of Russian metal surged to 80 per cent.
It looks as if someone is shovelling away this non-Russian metal in Port Klang as a distraction to others who want it.
Most of the free-floating warrants in the London Metal Exchange (LME) system are now Russian and stored at the port of Gwangyang.
Mobile queue
Interestingly, despite the large number of cancellations in May and early June, Port Klang did not have queues at the end of July. Whoever took all the metal seemed in no hurry to move it.
With the exception of November last year, ISTIM has long queues at Port Klang at the end of every month, a testament to its central role in the LME's free-flowing aluminium competition.
Now the team has followed the aluminum plate to Guangyang. The waiting time to ship metal out of the ISTIM warehouse was 17 days at the end of June and 16 days at the end of July.
If the person who canceled all the aluminum on Aug. 17 wanted to move it to a cheaper warehouse, the period could be even longer.
Warehousing is the single largest cost variable in equity financing transactions, which is why trading is often accompanied by a large circular flow of inventory between exchange and over-the-counter storage.
In this regard, Kwong Yang Port looks set to become the new Port Klang, especially as competition among warehouse operators seems to be intensifying.
While most of the goods arriving at Gwangyang port in the first quarter went to warehouses operated by istim, other warehouse companies at the port are also getting in on the act.
ISTIM's aluminium imports in July were 14,400 MT, with the remaining 16,650 MT split equally between C. Steinweg, Pac Global Services, Henry Bath and Access World.
The battle for aluminum storage may just be beginning.
