Working-Capital Relief in the Metals Supply Chain: A Detailed Guide to Commodity Repos

Producers, traders and fabricators often sit on large inventories while cash is urgently needed for freight, energy and payroll. A commodity repurchase agreement—better known as a metal repo—converts finished stock into short-term funding without forcing a distress sale. This guide from FG Capital Advisors covers every moving part—haircuts, warehouse control, daily margining, legal perfection and risk management—so any party holding copper, aluminum or nickel can turn tonnage into cash in fewer than five days.

1  |  Core Mechanics: From Spot Sale to Contractual Buy-Back

  1. Initial Sale →  The metal owner transfers title of exchange-grade stock to a financing counterparty at an agreed spot price minus a haircut.
  2. Cash Advance →  The buyer wires, for example, 85 % of the LME value to the seller.
  3. Storage & Control →  Inventory stays in an approved warehouse under a pledged receipt held by the buyer; no physical movement is required.
  4. Repurchase →  On the agreed date (30–180 days), the seller repays the cash plus a repo spread; title reverts to the seller.

2  |  Setting Haircuts, Rates and Tenors

  • Haircut: 10–20 % for copper; 18–22 % for more volatile metals such as nickel.
  • Repo Rate: SOFR plus 200–450 bp, negotiated deal by deal.
  • Tenor: Standard terms are 30, 60, 90 or 180 days; open-term structures roll every 30 days with margin compliance.
  • Margin Calls: Daily mark-to-market against LME settlement prices; the seller posts cash or extra metal when coverage falls below trigger levels.

3  |  Control Documents and Legal Perfection

  • Master Repo Agreement: Sets default events, margin procedures and dispute rules.
  • Warehouse Receipt Pledge: Endorsed originals placed with a collateral agent.
  • Security Filing: UCC-1 or local equivalent to evidence perfected title for the buyer.
  • Insurance Certificate: All-risk policy naming the buyer as loss payee.

4  |  Illustrative Transaction: Copper Cathodes in Dar es Salaam

Scenario: A Zambian mine holds 5,000 t of Grade A cathodes valued at USD 8,600 per t.
Terms: 12 % haircut, 60-day tenor, SOFR + 270 bp.
Advance: Roughly USD 37.8 million paid on at closing.
Outcome: The mine covers payroll and freight; the lender earns a 4.5 % return over 60 days.

5  |  Where Repos Stand Among Inventory Finance Tools

  • Versus Pre-Export Loans: Relies on existing stock, not forecasts of future output.
  • Versus Letters of Credit: No bank-line usage or risk of documentary discrepancies.
  • Versus Pledged Loans: True-sale format simplifies enforcement if the seller defaults.

6  |  How FG Capital Advisors Adds Value

We source compliant warehouses, draft concise documentation and coordinate audits, margin checks and funding—often within a five-day closing window.

Disclaimers & Considerations

FG Capital Advisors acts as arranger and advisor; it may not act as principal unless stated in writing. Commodity repos involve price, storage, legal and counterparty risks. Participants should obtain independent legal, tax and financial advice before entering any transaction.