Trafigura acquires warehousing firm Grafton’s Singapore business

Trafigura Group has acquired a metals warehousing firm with sizable operations in Singapore, as a mountain of surplus inventory in the Asian logistics hub opens up lucrative trading opportunities.

Trafigura Smelting Investments, a unit of the world’s largest metals trader, became the sole shareholder of Grafton Logistics Services (Singapore) in early September, according to company registration documents. Ian Swords, a Trafigura trader based in Geneva, was appointed as a director of the company, the documents show.

The deal marks Trafigura’s return to the London Metal Exchange (LME) warehousing industry, after the commodity trader originally entered the business in the wake of the financial crisis.

The company has previously delivered metals, including lead and zinc, for storage in Singapore, where traders can benefit from so-called “rent-sharing agreements” with warehouses.

Trading houses have long coveted control over warehouses and logistics networks, as knowledge of metal stockpiles and flows can offer a crucial edge in turning thin margins into serious profits.

That matters even more in the LME system, where registered warehouse receipts effectively stand in for real metal, underpinning the spreads, optionality and arbitrage that drive global trading.

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Trafigura declined to comment, while Grafton did not respond to a request for comment.

Grafton operates six warehouses in Singapore, according to LME data. Trafigura is already a 50 per cent shareholder of Impala Terminals, which operates a network of dry- and liquid-bulk terminals, along with warehouses. Impala withdrew from the LME services in 2015.

The Republic, strategically located between the Indian Ocean and the South China Sea, has long served as a key distribution hub for base metals. On Jurong Island and in Sembawang, stacks of metal can sit for years or be swiftly loaded onto vessels to meet demand.

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Singapore’s higher storage costs partly explain the buildup of inventory, even as cheaper LME warehouses operate in Malaysia and South Korea. The country hosts nearly all of the LME’s lead stocks, as warehouses and traders collaborate to earn rents from future metal owners.

Rent-sharing deals have encouraged some traders to store metal in Singapore — a legitimate but occasionally risky strategy for warehouses.

The concentration of inventory can also trigger massive swings in LME data when metal is moved in and out of Singapore.

Last week, the LME reported an increase of 117,550 tonnes in lead orders, the most in data going back to 1997. Almost all the orders were from Singapore, where stockpiles surged to record levels this year.

Grafton’s Singapore business forms part of a UK-based group that also operates warehouses in Malaysia, the Netherlands and the US.

UK corporate records indicate that the parent company, Grafton Commodity Trading, remains controlled by Benedict Sciortino, the chief executive officer of Swiss trading group DufEnergy Trading. BLOOMBERG