China filling warehousing gap with purchase of 220-year-old firm

[GENEVA] China's proposed acquisition of a majority stake in 220-year-old Henry Bath & Son Ltd from Mercuria Energy Group Ltd shows the world's biggest commodities consumer is expanding into metals warehousing even as western companies retreat.

Beijing-based CMST Development Co said on Monday it will pay US$60 million for a 51 per cent interest, marking the first major foray by a Chinese state-owned company into a London Metal Exchange warehousing business.

The sale of the stake in Liverpool-based Henry Bath underlines the shifting balance of power in global metals markets from Europe to Asia. Mercuria's larger trading-house rival, Trafigura Beheer BV, said last month it would exit its metals warehousing business in China and leave the LME's network of storage facilities amid the rout in commodity prices. Goldman Sachs Group Inc sold its Metro International Trade Services LLC metals-warehousing unit in 2014 to Reuben Brothers after the business attracted congressional scrutiny.

Named for its founder Henry Bath, who started a UK copper-trading business in 1794, the company was the first to issue an LME warrant, according to its website. Mercuria acquired the warehousing business as part of an US$800 million deal to buy the bulk of JPMorgan Chase & Co's commodities unit in 2014.

Henry Bath, which operates both LME and non-LME warehouses in the Netherlands, the US, Singapore and China among other locations, handles commodities ranging from aluminum and zinc to coffee and cocoa. The company operates about 50 LME warehouses, according to the LME's website.

The deal between the Swiss commodity trader and the Beijing-based logistics company is subject to due diligence and regulatory approvals in China, according to a CMST filing on Monday with the Shanghai Stock Exchange. The management of Henry Bath, a founding member of the LME, is expected to remain in place once the deal is finalized, probably by the end of the year, the Chinese company said.

CMST is the listed subsidiary of China's largest state- owned warehouse and logistics provider. It has over 70 distribution centers with the capacity to handle more than 60 million tons of commodities a year.

CMST fell 7.5 per cent to 9.45 Chinese renminbi ($1.48) in Shanghai on Tuesday, bringing the stock's decline over the past three months to 44 per cent.

LME Network Matt Lauer, a Geneva-based spokesman for Mercuria, declined to comment.

Six Chinese companies are already members of the world's biggest metals bourse, according to the LME's website. Hong Kong Exchanges & Clearing Ltd. bought the LME in 2012.

While the LME has more than 600 approved warehouses from Singapore to the US, Chinese rules prevent its network extending to the biggest metals consumer.

Earnings from storing metals in those warehouses have slumped in the past year as the LME took steps to cut lengthy waits for aluminum amid pressure from regulators. Warehouse companies with the longest queues are now required to deliver more metals than they take in. The LME is looking into additional measures that may include capping rent and faster delivery rates.

Henry Bath posted an after tax profit of US$12.32 million in 2013, according to the most recent filings from the UK's Companies House.

BLOOMBERG