Trading spaces

Chinese company and its British subsidiary Henry Bath bring worldwide scope to commodity connectivity

Inside a 20,000-square-meter warehouse, forklift truck drivers are lifting blocks of copper, nickel, zinc and other metals, piling them into neat stacks.

This orderly and well-guarded space is a new warehouse in the Shanghai Free Trade Zone in Yangshan, next to Waigaoqiao Port and Yangshan Deepwater Port, where vessels ship all over the world.

The warehouse, opened this month by China Materials Storage and Transportation Development Co in partnership with its UK subsidiary Henry Bath, was designed to support China's growing international commodities trade.

"One mission we seek to achieve is to build a logistics network and bridge between China's domestic commodity market and that of international markets," says Wang Haibin, general manager of CMST's Shanghai and overseas business divisions.

Although, from the outside, this warehouse looks like many other logistics warehouses used to store items, its security and commodity handling procedures are considered to be much stricter. The warehouse's floor, built with heavy-load capacity material, is designed for metal storage. Metals arriving at the warehouse are unpacked in a designated area and weighed using a special internationally standardized scale before being stored.

Wang says CMST has made use of Liverpool-based Henry Bath's expertise from more than 220 years of trading and storing commodities.

"Through close collaboration between CMST and Henry Bath, we can ensure that the warehouse fits the best international requirements for commodity handling procedures and security considerations, in preparation for China's integration into the global commodities trading space," Wang says.

The collaboration between CMST and Henry Bath is a story of the merging of two companies with long histories.

Henry Bath was founded in 1794 as a copper trading business that covered all aspects of the trading process, including sampling, weighing, setting freight landing charges and sales.

Over the next century, the small company grew, so that when the London Metal Exchange was founded in 1877 to give the world's commodity traders a more regulated platform for transactions, Henry Bath was a founding member of the exchange.

In this sense, Henry Bath played a key part in the history of the world's commodity trade as the industry transitioned from traders directly interacting with each other to finding counterparties on a regulated platform. On such a platform, commodity traders can more easily find counterparties for trades, much like how a stock exchange works.

Within this process, warehouses play an important role in protecting traders from counterparty risks. For instance, a seller can only trade on the London Metal Exchange when its metals are already in an LME-regulated warehouse, such as the Henry Bath warehouse.

Due to Henry Bath's relatively higher credibility, compared with newer warehouses, a buyer of commodities can secure better financing terms with banks when they are buying from a seller whose metals are kept in a Henry Bath warehouse.

It is Henry Bath's credibility, experience in managing metals, and global network of warehouses that made it an attractive target for acquisition by CMST.

In January 2016, CMST bought a 51 percent stake in Henry Bath for $60 million (48.7 million euros; ￡43.3 million). The remaining 49 percent of Henry Bath stays with its previous owner, Geneva-based Mercuria Energy Group.