Wednesday, March 3, 2010

Commodities: "The business of storage just got more competitive" (JPM; GS)

From FT Alphaville:

If you don’t have access to storage in physical commodities trading, you’re nobody.

For banks trading physical commodities it’s a particular problem and one they’re keenly working to resolve.

The FT’s commodities correspondent Javier Blas, for example, reported on Wednesday how two top commodity banks, Goldman Sachs and JP Morgan, recently entered the metal warehousing business:

As piles of base metals from aluminium to nickel build up due to poor demand, Goldman Sachs and JPMorgan have entered the little known but very profitable business of metal warehousing.

The deals reflect banks’ appetite for exposure to physical commodities beyond traditional commodities derivatives. Stockpiles at London Metal Exchange’s registered depots surge to an all-time high of 6m tonnes – up from 1m in 2007. Traders and bankers say warehousing is a classic “anti-cyclical” business as it flourishes when demand for metals is lacklustre and stockpiles mount.

The move follows on from Goldman Sachs, which last week bought Metro International, the operator of a global network of London Metal Exchange-approved warehouses, for a princely sum of $550m.

With inventories like this, you can see why they’d be interested:

The trend for all things storage, meanwhile, is also applicable to the energy markets.