The world’s largest metals stockpile is becoming more difficult to finance. That is a problem for those who trade it, and for metal markets in general.
Shanghai’s Yangshan bonded zone is currently home to at least 245,000 tonnes of copper, more than double the amount housed in all London Metal Exchange warehouses combined, as well as heaps of nickel, zinc and aluminium worth $2.1-2.3 billion at today’s prices, down from around $4 billion in 2017.
Traders use the zone as a venue for arbitrage, shipping then storing metal there until prices in China flare higher than overseas. This sometimes generates hundreds of dollars per tonne in the process.
But with major banks moving to limit their exposure to commodity trade finance, and in particular support for commodity inventories, traders and importers who use it as a place to hold units are finding this increasingly challenging, with the move having ripple effects across the rest of the industry.
“Because of the issues with some of the Singapore oil traders, some banks have stopped doing repo business this year,” Eric Liu, head of copper trading at Shanghai merchant ASK Resources, said. There had been no change for his company, he added, which benefits from ties to a Chinese state-owned entity so has greater access to capital.