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April 02, 2020 – [Financial Post – Published on March 31, 2020] – When it comes to commodities, the only thing in demand right now is somewhere to put them.
From oil tanks in Oklahoma to wagyu beef refrigerators in Kobe, facilities around the world are filling up with products that can’t get where they’re needed or are simply not wanted at all. The cost of storage is exploding, in sharp contrast to the price of the commodities themselves, which are collapsing amid the chaos of the coronavirus.
It’s a potential windfall for the companies that inhabit this prosaic but critical corner of the commodities universe, like oil tank firm Royal Vopak NV and even ship owners like Euronav BV. And as conventional storage rapidly fills up, anyone holding onto products is having to get creative in the hunt for space or in some cases resort to just giving them away.
“If you’re a storage operator, this is the opportunity of a lifetime to capitalize on your assets,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets. “During times of pandemic and distress, when people generally have less optionality, that optionality comes at a premium. Storage offers that because storage offers time value.”
The world’s producers of raw materials are confronting a historic collapse in demand as increasingly drastic measures to stop the spread of COVID-19 bring economies to a standstill, paralyzing factories, halting travel and crippling supply chains.
But stopping production is a worst case scenario. It’s enormously costly and disruptive to shut down an oil field or refinery, for example. What’s more, customers may be under contract to take delivery of the commodities anyway, regardless of whether they need them.
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