(The opinions expressed here are those of the author, a columnist for Reuters.)
LONDON (Aug 3): The business of providing warehousing services to the London Metal Exchange (LME) is becoming brutal.
Dutch logistics company Katoen Natie Commodities Antwerp "has withdrawn from LME warehouse services with immediate effect," the exchange told its members on July 30.
The company's Singapore arm was delisted earlier this month and its warehouse transferred to another LME operator, Henry Bath. Its two Antwerp units will now also be delisted.
Worldwide Warehouse Solutions (WWS), a specialist LME storage company, departed more chaotically last month.
The exchange told members on June 21 that it had "taken the decision to delist WWS on a permanent basis and terminate the Warehouse Agreement between LME and each WWS Company".
Its Singapore operations had also already been closed and metal transferred to another operator, but there were another 195 LME warrants backed by metal at other WWS locations.
The LME's Special Committee, charged with emergency powers to prevent any "undesirable situation (...) which in their own opinion has affected or is likely to affect the market," ruled to suspend the remaining WWS-stored metal until it can be relocated to another operator.
Two casualties in the space of two months.
Each has its own story, a particularly intriguing one in the case of WWS, but taken together they are a sign of the intensifying squeeze on the LME warehouse operators.
The LME currently has 536 registered storage units around the world, down from 596 this time last year and the lowest number since the start of the decade.
The list of LME warehouses peaked around the 700 level in 2012.
At that time there were over five million tonnes of aluminium sitting in LME storage.
As of the end of June this year there were 1.1 million tonnes. Indeed, total stocks of all LME-traded metal were just 2.2 million tonnes.
Holding as much stock for as long as possible is what the warehousing business is about so this five-year downtrend in the amount of metal stored in the LME system is warehouse operators' biggest collective headache.
Another, however, is the fact that metal is spending less time on LME warrant than was the case when there were months-long queues to load out aluminium at Detroit and the Dutch port of Vlissingen.
The LME's multiple rule changes have ended the queues. If new queues appear, the amount of rent that warehouses can charge is capped, incentivising faster load-out.
Maximum permissible rental and load-out charges have also been frozen. This, translated into LME warehouse operator procedure, means a cap on the incentives that can be offered to attract metal into sheds.
This squeeze on warehouse operating margins is both cyclical and specific.
Industrial metals such as aluminium, nickel and zinc are all experiencing a period of supply shortfall, causing an erosion of global inventory.
It's happened before and it'll happen again.
What's new this time around is the changed regulatory ecosystem in which LME warehouse operators now exist.
Faced with these pressures, LME warehouse operators have unsurprisingly shrunk their collective presence.
Total storage capacity in the LME warehousing system declined by almost 590,000 square metres or 12% over the year to the end of June 2018.
The falls were hardest in Europe and the United States, particularly at the two cities at the heart of the queues scandal, Vlissingen and Detroit.
Storage space increased at only four locations, all of them Asian and all of them only marginally. The previous LME warehousing charge into countries such as Singapore, Malaysia and South Korea appears to have lost momentum.
By operator the largest year-on-year fall in units was registered by Access World, the logistics arm of Swiss trade house Glencore.
However, 24 of the 40 units that disappeared off the LME list of Access facilities were at Vlissingen, another sign of the passing of the queue era.
WWS's 20 units are now also gone as are Katoen Natie's three. There was more natural shrinkage across several other operators such as C. Steinweg, Henry Bath and Engelhart.
The only stand-out expansion over the last year came from ISTIM Metals, another LME storage specialist, which grew by 13 units to 30, making it the sixth largest.
Third largest if measured by the amount of LME metal held, 19% of total stock as of the end of June.
Just ahead were Access with 20% and C. Steinweg with 22%. Include Engelhart, Henry Bath and P. Global Services and these six companies were storing 93% of all the metal in the LME's global warehousing system.
Size matters in LME warehousing and these big operators have successfully defended their share of a shrinking market place.
Smaller operators such as Katoen Natie and WWS have evidently struggled to compete.
The pressure is only likely to build further since that underlying stocks trend is still downwards.
It's not as if metal isn't being delivered into the system. Tight spreads and resulting high cash premiums have drawn large amounts of both aluminium and zinc onto LME warrant over the last couple of months.
But the 151,000 tonnes of aluminium that "arrived" last month have already been snapped up among the 210,000 tonnes that have been cancelled in preparation for departure.
LME zinc stocks, meanwhile, continue to reflect the circulation of physical metal between LME and off-market storage at just two locations; New Orleans and Antwerp.
Both markets speaks to the continued influence of storage arbitrage in LME trading dynamics, even when there are no queues.
Indeed, the concern must be that storage drivers intensify, as warehouse operators adapt their revenue strategies to survive the current downturn.
The LME's last crisis with warehousing was occasioned by too much metal trying to find cheaper storage away from the market.
The next one might be one of too little metal.
Natural shrinkage has been accelerated by the LME's overhaul of the system. It had no choice to do so given the potentially disruptive power of queues.
WWS, however, may be a warning that changes introduced at a time of cyclical surplus may have to be rethought at a time of stocks famine.