NEW YORK, June 18 -- Leading global warehousing firm Metro International SA is said to be paying about 30 percent more than its peers in incentives to attract greater flows of primary aluminum into its Detroit location, trade sources said on Thursday.
"It has come out over the past few weeks that Metro is paying out the wazoo for aluminum," one Midwest physical dealer said.
Metro, purchased by Goldman Sachs (GS.N: Quote) in February, is said to be offering incentives or freight allowances for primary aluminum at around $110, and higher -- about 30 percent above an estimated $80 to $90 range competing warehouses are said to be paying, dealers said.
"Historically, Metro has been very aggressive as far as incentives are concerned," another trader said.
"They have a freight advantage to the other warehouses. With material coming down from Canada, Detroit is the nearest location. Depending what the incentives are ... if they are higher, or on par with anybody else, it's probably going to them," he said of Metro's competitive edge over its peers.
As of Thursday morning, 945,200 tonnes of primary aluminum were being stored in LME-monitored warehouses in Detroit.
The greater incentive Metro is said to be offering is helping to keep the U.S. Midwest aluminum premium over London Metal Exchange (LME) cash prices buoyed at around the 6.5-cent level, the trader said.
"It's definitely holding the premiums up because the primaries are not going directly to customers.
"The customers they are doing business with are comfortable with the 6.5, or somewhere around that premium," he said.
Warehousing and financing are big business, with banks and other investors earning millions of dollars by buying cash metal cheaply, sell it forward at a profit, and strike a warehouse deal to store it cheaply for an extended period.
"When it comes to aluminum there's a tremendous amount of demand, but not a lot of consumption. The demand is on the warehouse financing deals," said a third trader.
"Let's just say they are doing 1,500 tonnes a day in a 20-day month. If they are doing 30,000 tonnes out, they can take in 3 to 4 times that in the three-day span around the cash settlement date," he said.
These financing deals have tied up about 70 percent of total LME stocks, which as of Thursday, stand at 4.48 million tonnes. MAL-STOCKS
Metro's competitive edge has slowed business for other warehouse companies in the region.
"There's a lot of tonnage out there, and they have almost a monopoly in Detroit," a source at a competing warehouse said. "They have been in Detroit for a long time, and there is some competition, but not to any comparison to what they are doing."
Metro runs a global network of London Metal Exchange approved warehouses for primary aluminum, aluminum alloy, copper, lead, nickel, plastic, steel, tin, zinc and plastics.