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Citigroup Inc. has been buying large volumes of physical aluminum and zinc on the London Metal Exchange, in a bold metal-financing trade that’s made it one of the biggest players in the market in recent months.
The trade has made Citi and other financial players something of a buyer of last resort for Russian aluminum — which now makes up the bulk of LME inventories — keeping it flowing through the LME system at a time when some feared it might become unsellable. Citi has struck a rent agreement with at least one warehousing company to store metal in Taiwan’s coastal city of Kaohsiung, and intends to ship metal there from LME warehouses in Korea and Singapore, the people said, although they cautioned that its plans could still change. Citi may ultimately decide to deliver the metal back on to the LME, one of the people said.
Warehouse executives are anticipating further inflows, registering 14 new facilities on the LME system in the past three months. Most of those are in South Korea, which has become a key delivery hub for Russian aluminum that is being shunned by some buyers in the US and Europe. Financing plays were a dominant theme of the LME’s market in the years after the global financial crisis, when banks and traders bought up warehousing companies and engaged in battles to control and profit from a critical mass of inventory in a period known as the “warehouse wars.”
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