(Bloomberg) -- Metal stockpiles are surging in Singapore, and slowing global demand is only part of the reason.Most Read from BloombergManchester Is Giving...
Refined zinc and lead have been pouring into Singapore since the middle of last year, making one of the smallest countries in the world a critical vault for companies including Trafigura Group and Glencore Plc.
“Soft demand in China is the ultimate reason,” said Jia Zheng, the head of trading with Shanghai Soochow Jiuying Investment Management Co., “Traders are waiting for the Chinese demand recovery so they can ship these supplies to the world’s largest market quickly.”Singapore has been an important distribution center for base metals for decades.
The agreements — more commonly used in copper and aluminum warehouses in other countries — can result in about half of the storage costs getting shared with trading companies. But they come with a financial risk for warehouse operators. It’s not just Trafigura and Glencore pushing this model for metals storage. Citigroup Inc. has also been shifting some metals from competitor’s warehouses to ones it has been able to strike rent-sharing agreements with, according to the people. There’s nothing improper about the strategy, but it does present new risks to the warehouses.
The downbeat outlook for metals demand means the risks for the warehouses aren’t going away. And while there are other storage sites in Southeast Asia, Singapore’s location and established base of traders and banks means that it can provide sufficient liquidity for these inventories, both in a financial and logistical sense, said Henry Pang, an industry veteran who helped to set up the first Asia LME warehouse in Singapore in the 1980s.
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