Strategic metals such as technology metals and rare earths are increasingly sought-after tangible assets. But what is the best way for private buyers to store their metals? Basically, there is a choice between individual and collective custody. We explain the advantages and disadvantages of both types of storage.
If you have a savings plan for strategic metals, you usually place your commodity shares in collective custody, which is taken care of by your financial services provider. If you buy the metals directly from the commodity trader, you can basically choose between two storage options: the aforementioned collective custody and individual custody. Both services are usually offered by a specialised service provider with a privately managed storage facility.Â
Individual and collective safe custody: a brief introduction
Commodity investments are usually stored in collective custody, also known as fractional custody. In this case, a buyer owns the fraction of the total quantity of a stored commodity. This could be, for example, 5 kilograms Indium of all 15 tonnes of indium in stock. The warehouse operator where the metals are stored ensures that the quantity of goods purchased by the customer is physically present. Customs and auditors regularly certify the stock of goods. The purchased goods are recorded digitally in the respective customer accounts and do not have to be physically moved during the process.
Individual storage, on the other hand, allows the purchased quantity to be stored separately. The raw material is removed from a batch or packaging unit, individually packaged and given a new batch number as well as its own certificate of analysis. Depending on the quantity, the metals are stored in a safe, a mesh box or a pallet storage area.
Indium bars packed in wooden boxes and stored in a collective warehouse
Collective custody as an advantageous solution
Collective safe custody proves to be the best choice for private buyers of strategic metals. There are several reasons for this, all of which are closely linked to the subsequent resale of the raw materials to industry. The raw material supplier or the provider of the collective storage facility, e.g. in the form of a Duty-free warehousecan take the desired quantity for industrial sales from the total stock at any time and thus fulfil requirements for rare earths and technology metals in large quantities ranging from one hundred kilograms to several tonnes. Another factor is the specifications of the goods. Depending on the production process, companies require metallic raw materials in certain qualities. The specifications include the degree of purity and the composition with other materials. Trading in small quantities from several different sources is more time-consuming for industrial buyers and presents them with additional challenges when it comes to maintaining stable product quality.
The disadvantages of individual custody
As already described, the industry prefers to purchase large quantities from just one batch and just one seller. As a result, the private seller must reckon with a great deal of time and high discounts if he wants to sell the raw materials he has purchased. It may also be necessary to carry out a new quality inspection of the raw materials, the costs of which must be borne by the private seller. Costs such as customs duties and import sales tax are also incurred. Another financial disadvantage of individual storage is that the storage space required is greater than for collective storage due to the separate packaging unit.
Self-custody is fraught with risk
For the sake of completeness, self-custody should also be mentioned as a third option. This is often practised for the two precious metals gold and silver. The owner stores the bars or coins at home and bears all risks such as burglary. This form of storage is not suitable for industrial metals. For one thing, removing the metals from the bonded warehouse means interrupting the industrial supply chain. In addition, as already described for individual storage, the material must be cleared through customs and import VAT must be paid. Any handling and transport costs incurred must be borne by the buyer. If the metals are to be reintroduced into the industrial cycle, this is very difficult due to the small quantities involved. The high discounts to be expected on sale can reduce the chances of making a profit. Responsible commodity traders therefore generally do not deliver the metals for their own safekeeping.
Conclusion
Collective storage is suitable for private buyers who want to invest in strategic metals cost-effectively. This form of storage is also convincing as it creates the best conditions for uncomplicated resale to the industry. Individual storage, on the other hand, makes it more difficult to liquidate to industrial buyers and is associated with higher costs and logistical effort.
