According to foreign reports on August 29th, Gwangyang Port in South Korea has become a new hub for storing London Metal Exchange (LME) aluminum.
Warehouses registered with the London Metal Exchange in the city currently hold 256,650 metric tons of aluminum, accounting for 49% of all non-ferrous metals in the exchange’s global warehouse network.
At the beginning of this year, Gwangyang Port held only 24,025 tons of aluminum, but a significant influx of Russian-branded metal boosted the stocks beyond those of Port Klang in Malaysia, which was the preferred storage location for the exchange.
Crucially, Gwangyang now accounts for 70% of the live inventory within the LME system. This means it is the last resort for anyone needing metal from the market.
For example, on August 17th, this company dug 75,600 tons, only to reverse all of it, possibly preparing for actual loading.
Within the following week, an additional 54,000 tons of aluminum arrived, indicating there would be more turnovers in the warehouse.
Weak demand has inflated the time spreads on LME aluminum to super-contango levels, sparking interest among investors in stock financing deals. The battle will unfold in Gwangyang.
Gwangyang Grabs the Spotlight
In the first quarter of this year, aluminum stocks at LME’s Gwangyang warehouse totaled 198,125 metric tons, with most of it being delivered within four days.
The majority of inflows are metals delivered by Glencore, under purchase agreements with Russian aluminum giant Rusal.
While not subject to official sanctions, Russian aluminum has been replaced by punitive tariffs from the United States and self-imposed sanctions by Western consumers opting for other brands.
Almost all arrivals have been warranted by warehouses operated by ISTIM, which stored 200,425 metric tons of LME metals as of the end of March.
Last year, ISTIM registered 24 new LME warehousing units in Gwangyang and currently operates 31 out of the 63 LME warehousing units in Gwangyang.
Since the end of September 2022, Gwangyang’s LME storage capacity has increased by 35,000 square meters to reach 249,000 square meters, making it the fourth-largest exchange storage location globally, only behind Rotterdam, Busan in South Korea, and Port Klang.
The latter still has 407,000 square meters of LME capacity, reflecting its prior dominance in aluminum storage. Stocks at Malaysian ports reached an astonishing 668,000 tons at the beginning of last year.
Since then, they’ve declined to 221,600 tons, with almost all remaining stocks canceled, leaving only 43,225 tons of physical inventory.
Russian Metals Now Dominating
Hoarding LME aluminum during times of weak demand is not new, but this time, the battle has a distinct Russian flavor.
As of the end of March, LME aluminum stocks were almost evenly split between Russian-branded metals at 53% and Indian-branded metals at 45%.
Port Klang’s stocks underwent surprise inspections in May and early June, with 132,300 tons of aluminum canceled on May 10th, followed by 68,250 tons leaving circulation at the end of the month and the first week of June.
After the clearance action at Port Klang, the proportion of Indian-branded aluminum in warrant stocks dropped to 18% by the end of June, while Russian metals surged to 80%.
It appears as though someone at Port Klang was moving these non-Russian metals out as a disruption to others wanting it.
Most of the freely circulating warrants within the London Metal Exchange (LME) system are now Russian, held in Gwangyang.
Shifting Queues
Interestingly, despite the mass cancellations in May and early June, Port Klang did not have queues at the end of July. Whoever took away all the metal does not seem in a hurry to move it.
ISTIM has had queues at the end of every month in Port Klang since November last year, indicating its core role in the competition for LME freely circulating aluminum.
Now, the queue has followed the aluminum to Gwangyang. The waiting time for metal moved out of ISTIM’s warehouse at the end of June was 17 days, and it was 16 days at the end of July.
If those who canceled all the aluminum on August 17th want to move it to cheaper warehouses, this period could be even longer.
Warehousing is the single largest cost variable in stock financing transactions, which is why trading often accompanies a substantial flow of stocks between exchange and off-exchange storage.
In this regard, Gwangyang Port seems poised to become the new Port Klang, especially as competition among warehouse operators appears to be intensifying.
While most of the aluminum arriving in Gwangyang Port in the first quarter went into ISTIM-operated warehouses, other warehousing companies at the port are joining the action.
ISTIM imported 14,400 metric tons of aluminum in July, with the remaining 16,650 tons split evenly among C. Steinweg, Pac Global Services, Henry Bath, and Access World.
The aluminum storage battle in Gwangyang may have only just begun.