J.P. Morgan Chase & Co is looking to sell its metal concentrates business due to US regulatory restrictions following its acquisition of RBS Sempra Commodities, and currently faces a deadline of mid-year, industry sources told Reuters. Stamford, Connecticut-based J.P. Morgan Metal & Concentrate LLC, led by Chief Executive Philip Bacon, is a small part of the bank's expanded commodities division.
It is a mid-sized player in the increasingly competitive market for trading concentrate - ore that has been crushed and milled to remove waste and increase the metal component. The planned sale will raise questions about the future of UK-based Henry Bath, the global metals warehousing firm, because the Federal Reserve has previously barred a commercial bank - the Royal Bank of Scotland Group - from owning both assets, industry sources said. For a full story on the Fed and commodities:
At least one company with its own international base metal concentrate trading operations kicked the tires on J.P. Morgan's unit late last year, but walked away without pursuing it further, a source familiar with the process told Reuters. The reason for the withdrawal is not known.
Four other senior industry sources also said the business is for sale, although the sources did not have direct knowledge of any specific discussions with J.P. Morgan. Some traders have questioned whether the bank will find a buyer in the ultra-competitive market. The unit trades copper, zinc and lead concentrates, a type of intermediate product that smelters use as raw material to make refined metals.
Because concentrates are not traded on any derivative exchange, the US Federal Reserve had required RBS to divest or shut down the business within two years when it granted approval to the UK bank's acquisition of a stake in Sempra Commodities in 2008, according to its published order.
J.P. Morgan then bought the same operation in mid-2010 as part of its $1.7 billion acquisition of RBS Sempra's global metals and oil business. The bank has not received any explicit authorisation from the Fed to carry on operating the business. Talks with the Fed are ongoing, sources say. The new two-year deadline for the sale - which the Fed has the option to extend - is fast approaching. A J.P. Morgan spokeswoman declined to comment for this story.
The trading team is well respected, although it is thought to be dwarfed by the bank's London-based physical metal trading business, sources said. The unit traces its history back to MG Metals, the Metallgesellschaft operation that dominated the metals market in the 1990s and was later bought by Enron.
It can be a hugely profitable business through spot or long-term contracts. When mine output falls, so do charges that miners pay smelters to treat and refine their material as smelters scramble for raw material. In 2010, copper concentrate supply was so scarce after swathes of mining capacity were shuttered during the global economic crisis that charges plunged to zero and there were reports of Chinese copper smelters paying mines for material.
"(Concentrate trading) is playing games on long-term supply. You make it through buying offtake, waiting until the market's tight and selling it on," said a European concentrate and cathode trader. Competition for spot deals is even more fierce, with smelters such as Japan's second-largest smelter Sumitomo Metal Mining Co often buying direct from major miners, such as BHP Billiton.
There are a few spot opportunities from Indian and Chinese smelters, which buy a small portion of their annual requirements on the spot market, but the market has shrunk. Industry consolidation such as Freeport-McMoRan Copper & Gold's acquisition of Phelps Dodge has created ever-larger companies with their own mining and smelting facilities.
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