London 30/12/2015 - Metro International has stunned the metals market, including the London Metal Exchange (LME) itself, with considerable warehouse fee increases for the year starting April 2016, whereas Pacorini has surprised with only modest rises.
Metro, which is owned by the Reuben Brothers, submitted the sharpest fee increases of all the listed warehouses, according to an LME notice on Wednesday. It lifted its daily rent for primary aluminium by a third to 72 cents per day per tonne compared with 54 cents currently, while its free-on-truck (FOT) charge in Detroit - its flagship location - is up by 39 percent to $55.55 per tonne from $39.95 a tonne.
By contrast, Pacorini Metals - the Glencore-owned warehouse that will be worst hit by new LME rules in 2016 - has put forward a moderate four-percent rent increase at its headquarters in Vlissingen to 52 cents a day for aluminium from 50 cents previously, while the FOT is rising by just six percent to 31.4 euros a tonne ($34.2) from 29.5 euros.
Istim, owned by the Whelan family that founded Metro, has also raised daily rents by a third for aluminium in Detroit to 60 cents from 45 cents and by 22 percent for zinc in New Orleans to 57 cents - this compared with a daily fee of 51 cents set by Pacorini for both metals and locations.
The third most agressive warehouse operator in terms of rent increases is Noble-owned Worldwide Warehouse Solutions (WWS), with a rent increase for aluminium of nearly ten percent in Vlissingen to 57 cents a day.
The LME, which has no control over warehouse fees, said on Wednesday that the average increases of 10 percent for rents and 12 percent for FOT charges for 2016-2017 seemed "out of line" and that it was reviewing the economic rationale for such revisions.
The charge increases are at the higher end of the range reported by FastMarkets on December 18, but below rates predicted by other news outlets.
What suprised market participants the most is the fact that the largest fee increase came from Metro rather than Pacorni Metals, sources said. Both operators have long queues to take delivery of aluminium in Detroit and Vlissingen, respectively.
"I'm very surprised [by Metro's revised rates]," a source at another operator said. "We received pressure from the exchange on our modest increases. This seems to be inviting a fight with the exchange."
"Considering Metro's tonnage in Detroit is all cancelled, they have no advantage of the higher FOT. So why? Their rent increases are really high - is their plan to push the LME into charge capping?", another warehouser said.
The exchange has mulled the possibility of implementing rent and FOT charge caps (CC) but thus far has adopted a "wait and see approach". On Wednesday, it warned warehouse operators that it was still considering its options regarding CC and advised them to pay incentives during 2016-2017 on the basis of the full level of 2016-2017 rents and FOT.
Another source also questioned Metro's motive, arguing that it would be a way to be "a managed wind down of the business", i.e. a way of collecting as much income as possible before exiting the LME warehousing sphere altogether.
Metro was sold by Goldman Sachs to the Reuben Brothers in December 2014 and has since lost a lot of tonnage, quasi exiting Europe and concentrating on its US base in detroit.
Pacorini Metals, meanwhile, was more subdued than expected with modest fee increases for next year despite the fact that new LME rules on load-out requirements and rent caps for metal in queue will potentially cost them some $200,000 a day from June next year.
Because of that, many industry participants including the LME itself had braced themselves for significant rent increases and the possibility of a litigation. But the first element has failed to materialise and the lawsuit looks unlikely, given that Glencore's global metals strategy is bigger than LME warehousing and averse to further legal action or bad press, FastMarkets understands.
(Editing by Kathleen Retourne)