Beer Institute: Warehouse Fees Raise Costs for Metal Consumers

Updated June 21, 2013, 4:37 p.m. ET

Beer Institute: Warehouse Fees Raise Costs for Metal Consumers

By TATYANA SHUMSKY

A trade group that represents many of the world’s largest beer brewers has lodged a complaint with the London Metal Exchange, saying the exchange hasn’t done enough to alleviate supply bottlenecks in its warehouse system that the trade group says have raised the price of aluminum used in beer cans.U.S. beer makers and their suppliers buy aluminum at prices set on the LME and must pay an added fee to cover the costs of metal transportation and delivery. This extra cost surpassed $200 a metric ton last year, as the wait to secure metal from LME-licensed warehouses stretched to a year or more in some locations.

In a letter to the LME sent in October 2012, the Beer Institute asked for “greater transparency” and changes in warehousing rules. The group represents brewers that account for 93% of beer sold in the U.S., according to the group’s calculations, including Anheuser Busch-InBev NV BUD -0.27%and MillerCoors LLC, as well as can manufacturers like Ball Corp.BLL -0.19% and Novelis Inc.

“These practices are basically preventing brewers and suppliers from obtaining aluminum in a reasonable time frame or at fair market prices,” said Christopher Thorne, a spokesman for the Beer Institute.

The LME said it shares the concerns of some in the market, and has “brought in a series of measures to relieve the situation,” an exchange spokesman said in an email. “We continue to monitor the situation and will act again if it is in the market’s best interests,” he said.

Aluminum began to pile up in LME’s Detroit warehouses in 2009. As of June 18, the LME’s Detroit warehouses held 1.4 million metric tons of aluminum, of which more than a million tons was in line to leave storage, according to LME data. At the current minimum delivery rate of 3,000 tons a day, it would take about 337 business days to empty those warehouses of the aluminum in line to leave storage. The LME’s total aluminum stockpiles are at a record 5.3 million metric tons, the data show.

Many traders say the long waits and rising fees are a result of warehouse operators being acquired by companies that also trade commodities. These companies pay above-market rates to lure metal to their warehouses, and can earn a profit from charging rent and on fees for prompt delivery, traders and consumers say.

The London exchange in April 2012 began requiring more metal to be released from warehouses each day, but metal users and traders said the rule changes haven’t resulted in shorter waits or lower delivery fees.

In April of this year, the exchange introduced another round of new rules, requiring warehouses with a hefty bottleneck in one metal to also deliver at least 500 metric tons of another metal a day.

Still, metal users and traders said neither rule change has resulted in shorter waits or lower delivery fees.

“We feel it was not enough to solve the problem…the distortion still exists,” the beer group’s Mr. Thorn said.