Commodity trader Trafigura has recently delivered substantial quantities of lead to London Metal Exchange (LME) warehouses in Singapore, capitalizing on lucrative rent-sharing agreements, according to three sources familiar with the situation.
As of November 18, stocks of lead in LME-registered warehouses reached 276,250 metric tons, the highest level in over 11 years. Notably, LME lead inventories in Singapore increased by more than 90,000 tons between November 15 and 18, with Trafigura reportedly responsible for a significant portion of these deliveries.
Trafigura has opted not to comment on the matter.
These “rent deals” allow LME warehouses to share their rental income with companies that deliver metal to them. The delivering firm does not need to maintain ownership of the metal to benefit from these agreements; they receive a share of the rent as long as the metal remains in the warehouse, with rental fees paid by the new owners.
In Singapore, the maximum rent that LME warehouses can charge for lead is 51 U.S. cents per ton per day. For the recently delivered 90,000 tons, this could generate nearly $46,000 in daily rental income.
As of the latest data, benchmark lead prices on the LME were down 0.7% at $2,006 per ton, having declined 7.5% since peaking nearly three months ago on October 7.
These rent deals are feasible because companies can purchase cheaper nearby lead contracts while selling higher-priced contracts with longer maturity. Earlier this month, the discount for cash against the three-month lead contract exceeded $40 per ton.
This pricing dynamic is partly attributed to surpluses resulting from the transition from internal combustion engines, which utilize lead-acid batteries, to electric vehicles that rely on batteries made from other materials like nickel, cobalt, and lithium.
The International Lead and Zinc Study Group (ILZSG) projects a global lead market surplus of 63,000 tons this year, with an anticipated surplus of 121,000 tons next year.