There's a lot of empty floor space in the London Metal Exchange's warehouses these days.
China's hunger for metals to feed its thriving economy has sparked an exodus of metal from the more than 400 warehouses approved by the LME world-wide, driving the benchmark exchange's global copper stocks to a near seven-year low.
Deliveries in the other direction are scarce, as producers rush to meet booming orders directly and circumvent storage charges.
"There has been a shift to shipping material directly from the country of origin, by-passing the warehouse completely," a metals trader in Singapore said. "It's only a matter of time before the warehouse sees itself playing a very diminished role."
Peter Richardson, head of global commodity research at Deutsche Bank in Australia said:
"In copper and nickel, we've seen dominant producers holding back stocks in rising markets and engaging in direct marketing in a way that has handed them windfall profits.
"These strategies work when the market is buoyant, but they are costly and dangerous when the market is not."
Chile's state-owned Codelco, the world's largest copper producer, had begun releasing a 200,000-tonne stockpile built up in 2003, of which most had already been sold - directly or indirectly - into China, traders said.
The world nickel market only averted a supply deficit last year after the largest producer, Russia's Norilsk Nickel, injected 60,000 tonnes from its own stockpile.
Benchmark three-month LME copper touched an 8-1/2-year high of $3,055 a tonne on March 2 and has traded above $2,800 for most of March, compared to around $1,700 a year ago.
At $17,720 a tonne, nickel hit a 14-1/2-year high earlier this year, a landmark also touched by three-month tin prices when they hit $8,500 in London on Tuesday.
FALLING LME STOCKS: The LME neither owns nor operates the warehouses. It approves warehouse locations "with the objective of having a widespread network throughout the world in most of the important areas of net consumption," it says on its web site.
The warehouses are operated by private firms, such as C. Steinweg Warehousing (F.E) Pte Ltd, Singapore's GKE International and Henry Bath & Son, a unit of Sempra Energy.
LME copper stocks world-wide fell below the psychological threshold of 200,000 tonnes earlier this week. Stocks were at 191,750 tonnes on Tuesday compared to 812,950 a year ago and a peak of 980,000 tonnes in May 2002.
Nickel stocks on the LME were at 15,192 tonnes versus 24,348 a year ago and lead had fallen to 74,325 tonnes from 182,625. The 7,720 tonnes of tin in LME warehouses, from 24,865 tonnes a year ago, would be exhausted in two to three weeks at current rates.
But the metal shortage is not as acute as dwindling LME stocks alone would suggest.
While falling copper stocks were to a large extent due to increased consumption and a shortage of metal, industry sources said traders had taken copper from LME warehouses and stored it off-warrant or in private locations.
Copper stocks in China are likely to have surpassed global LME stocks, traders said. The Shanghai Futures Exchange recorded 120,808 tonnes of copper at its registered warehouses as of March 25, up 925 tonnes from the previous week.
Traders estimated a total of 300,000 tonnes, including the Shanghai exchange's reserves, were stockpiled in and around Shanghai, plus at least a further 50,000 tonnes released in March by China's State Reserves Bureau.
CYCLICAL BUSINESS: In Singapore, traders said it cost between 22 and 26 cents a tonne daily to store metal in an LME-registered warehouse. In a private warehouse, it cost as little as 10 cents, they said.
LME warehouse operators were also charging FOB premiums of around $35 a tonne to take metal out of Singapore, they said. "In private warehouses, you only end up paying $10," added one.
Some traders said the trend to ship direct from consumer to end-user would continue to harm warehouses, but most agreed warehouses would fill up again when demand for metal subsided.
"The market goes in a cycle," said a Singapore-based official for a warehousing company, who asked not to be identified.
"There are traders who view LME and non-LME warehousing as a cyclical part of their business. They tend to expect low returns on that business during boom times, but look to good returns during periods of weak pricing," Deutsche Bank's Richardson said.
"The market, for price discovery purposes, needs transparency in respect of at least a sizeable proportion of available stocks. One of the important functions of the LME in this respect is its daily reporting of stocks and prices," he said.
And as for aluminium and zinc? LME stocks on Tuesday, at 1.25 million and 706,800 tonnes respectively, were level or higher than they were a year ago.