Citi delivers around $155 million worth of zinc for rent deal

Stock image.

Citi has delivered 60,000 metric tons of zinc with a value of around $155 million to London Metal Exchange (LME) approved warehouses in a potentially highly profitable rent-sharing deal, two sources with direct knowledge of the matter said.

The US bank is expanding its footprint in metals after it agreed a similar zinc deal in August and in September was involved in an aluminum trade for 100,000 metric tons of the metal, with a value of around $225 million.

The zinc deal is made possible by surpluses of the metal, particularly in top consumer China, where a construction and manufacturing slowdown has hit demand, while smelters continue to produce the metal used to galvanise steel.

So-called “rent deals” are agreements under which LME-registered warehouses share fees or rental income with companies that deliver metal to them. The fees are paid by the eventual owner of the metal.

Daily fees for storing zinc average 54 US cents a ton, more than five times higher than for metal stored outside the LME system.

It is not possible to determine exactly when Citi initiated the deal, the sources said, but they said the amounts of zinc delivered by the US bank in this latest trade was around 60,000 tons, earning roughly $32,000 a day in rent.

Citi declined to comment.

“There has been a lot of zinc sitting outside the LME system in Singapore,” one of the sources said. “Most of the zinc delivered into LME Singapore warehouses was from Citi.”

Zinc inventories in LME warehouses jumped 65,725 tons, nearly doubling to 133,200 tons, on Nov. 15, with 4,300 deposited in Port Klang in Malaysia and 61,425 in Singapore.

Benchmark zinc prices on the LME hit a six-week high of $2,667.5 a ton on Wednesday, partly due to falling stocks in LME warehouses, which had dropped more than 50% since the start of September, and a break of key technical levels.

Citi’s deliveries have undermined the idea of a tight zinc market created by declining stocks and prices on Thursday have so far fallen 3.3% to $2,570 a ton.

The consensus forecast for zinc surpluses this year and next in a recent Reuters survey were 148,000 tons and 238,000 tons respectively.

Surpluses of metal are often delivered to the LME, a market of last resort, and put on warrant – title documents that confer ownership of metal.

Zinc and aluminum are typically used for rent deals as they are low value metals compared to copper, nickel and tin and require less capital.

(By Pratima Desai, Julian Luk and Eric Onstad; Editing by Veronica Brown and Mark Potter)


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