Standard Chartered has no plans to buy a metals warehouse, its global head of metals trading said, shunning a rush by banks to get into the storage business, and instead will continue to work with warehouse companies. "It's not something that has been on our radar, but it could be something that we look at in terms of working alongside warehousing companies, teaming up with them in the market rather than making a principal investment," Jeremy East told Reuters in an interview.
"Often, when we're involved in any financing deals we work alongside the warehousing companies," he said. Standard Chartered is one of the biggest players involved in financing deals. In a typical deal, a bank buys nearby metal from a producer, selling it forward at a profit and striking a warehouse deal to store it cheaply for an extended time period.
Many companies have been diversifying into warehousing in the economic downturn because the industry typically performs well in a recession, when there is less need for metal but money can be made from payments for their storage. Last week, commodities heavyweight Barclays Capital bought a stake in a metals warehouse, sources told Reuters, following Goldman Sachs, J.P. Morgan and Glencore into the business.
"The world goes in cycles and if in five years time if the economy picks up, then all these companies and institutions who have invested in warehouses will have spare capacity on their hands," East said. He also expressed some concern about big financial players owning warehouses even as they trade the commodity. "They have to be very carefully looked at in terms of conflicts of interest," East said. "I think the LME is trying to address the issues on the warehousing side; we wait to see the market impact." The LME says it enforces a strong separation between warehouses and the trading arms of their owners. In July, it proposed that companies which own warehouses should engage an independent third-party to verify the robustness of Chinese walls.
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