A concentration of energy-intensive base metals stocks in a handful of warehouses threatens to impede buyer access to needed supply, warned VTB Capital’s global head of commodities research Wiktor Bielski at the firm’s New York Investment Forum on Wednesday.

Prior to 2008, most production of six base metals – aluminum, copper, nickel, zinc, lead and tin – was traded under long-term contract, at prices heavily influenced by a 10% “float component”, which allows both buyer and seller to take up to 10% more or less of the contracted volume. This marginal supply component was broadly distributed among producers, consumers, traders, merchants, and exchange warehouses, and readily accessible in the event of an uptick in demand.

Over the last few years, as economic weakness has slowed growth in global demand for base metals, both producers and consumers have taken steps to reduce stocks on hand. “The de-stocking that we’ve seen in the last two to three years has largely gone to a single source, and for base metals, that’s the LME [London Metals Exchange],” Bielski said. LME stocks of the six base metals, which rarely rose above 2 million tons in the past, recently hit 7.6 million tons, he said.

“Traders and hedge funds have started to use this metal, both for financing purposes and in particular recently, for what are being called more and more ‘warehouse games’,” Bielski said. Driving the trend are “a large Swiss trader, whom I won’t name”, as well as some other commodities traders and large US banks, he said.

These traders and financial firms have effectively stockpiled marginal supply, which is locked into queues, at a handful of locations globally. Of the LME’s 7.6 million tons of base metals stocks, about 6.5 million tons is being held in six or seven warehouses, according to Bielski.

“The metal is all stored in a very small number of locations, it’s very tightly held, in most cases it’s very difficult for consumers to buy,” he said. “As a result, there’s very little float that will be available once demand starts to pick up again.”

For example, the entire increase in LME copper stock since October has been funneled into warehouses in Antwerp, Netherlands, Johor, Maylasia and New Orleans in the US, but large queues of zinc – more than 450,000 tons in New Orleans, and another 200,000 tons in Antwerp – will impede access to it, Bielski said. “All of those warehouses have queues that will block them for at least 12-15 weeks, and in the case of New Orleans, it’s something in the region of 30 weeks.”

These delays will pose a particular challenge following the large-scale de-stocking of the past few years. “In a de-stocked world, consumers need immediate delivery,” Bielski said. “Putting metal into warehouses in queues takes it away from consumers, because it’s not available to them in realistic terms.”