A string of warehouses in Detroit, most of them operated by Goldman, has stockpiled more than a million tonnes of the industrial metal aluminum, about a quarter of global reported inventories. Simply storing all that metal generates tens of millions of dollars in rental revenues for Goldman every year.
There’s just one problem: only a trickle of the aluminum is leaving the depots, creating a supply pinch for manufacturers of everything from soft drink cans to aircraft.
The resulting spike in prices has sparked a clash between companies forced to pay more for their aluminum and wait months for it to be delivered, Goldman, which is keen to keep its cash machines humming and the London Metal Exchange (LME), the world’s benchmark industrial metals market, which critics accuse of lax oversight.
Analysts question why London’s metals market allows big financial players like Goldman to own the warehouses which store huge quantities of metal even as they trade the commodity.
Robin Bhar, a veteran metals analyst at Credit Agricole in London says the conflict of interest is so acute he wants U.S. and European anti-trust regulators to weigh in.
“I think it makes a mockery of the market. It’s a shame,” Bhar said. “This is an anti-competitive situation. It puts some companies at an advantage, and clearly the rest of the market at a disadvantage. It’s a real, genuine concern. And I think the regulators have to look at it…”
RTFA. Long, detailed, well-researched – and disgusting.
I once lived by an aluminum manufacturing plant and, at that time (early 80s), they had a large back-up of stock. It was stacked in huge ingots on miles of roads that snaked through their property. Millions and millions of dollars worth, I’m sure. (but not easy to steal!)
I asked them why they did this and the guy said it was because they could not incrementally taper their production levels. The had three kilns (I believe) and they either had to cut their production by 1/3 or 2/3 in economic downturns or stockpile. (Apparently it costs a fortune to shut the kilns down.)
Would that explain this story?
>> MikeN said, on July 29th, 2011 at 11:59 am
>> Even an executive order to encourage lifestyle behavior modification.
You mean the first lady’s fitness promotion? Or something equally as innocuous?
Oh, c’mon Mike, you seem paranoid.
Did you consider Laura Bush’s literacy effort “behavior modification?” All presidents do this stuff.
nationalize Apple, do it now, then nationalize the top 10 and take all their cash.
This has been going on for quite some time already. I don’t need to remind all of you of the cases of theft involving metals of any kind, especially copper. LA was where a lot of these stories came about where people would steal wires from lightposts and such.
This is more or less what happens with diamonds, which are actually worthless crystals…
BTW, the link to the article appears to be broken.
The current link appears to be
http://reuters.com/article/2011/07/29/us-lme-warehousing-idUSTRE76R3YZ20110729
If I understand correctly, producers, futures traders and others own the metal, but the warehouse companies control how much can be shipped from the warehouses in any given time period, which appears to be about 25% of the rate at which it is shipped into the warehouses.
It’s as if your bank said you could only withdraw 1/4 of your weekly or monthly deposits per week/month. A great savings plan, but who would stand for it?
The Hunt brothers were pikers by comparison.
#26 Thanks!
It’s no big deal. At least we know where to get it when martial law is declared. A million tons of aluminum is worth $2.4 billion assuming a short ton, or 10% more for a metric ton. It’s not that much metal. But it sure will be handy when we have to pay for everything with “hard” currency in a year or two.
Aluminum, steel, planes, grain, natural gas, meat, and weapons are all commodities that we will use to settle foreign accounts in a year or two.
Mr. Bhar is asking too many questions. Someone nip this in the bud.
Hoarding is not something that needs to be outlawed.
If a large amount of aluminium is hoarded, it increases the price of aluminium on the open market, due to scarcity.
There are negative consequences for the hoarder. Firstly, the the more they hoard, the more expensive it is to increase the hoard.
Secondly, if they try to sell large quantities at atime, this can flood the market and suppress the price of aluminium, meaning that they could take a loss.
Another point, suppose the price of aluminium rises to a level where certain industrial uses start to have a competitive disadvantage in comparison to other materials. For example, some manufactures might use tin instead of aluminium. This would reduce demand for aluminium and the price would fall, negating any advantage to the hoarder.
But the most important point is, by holding the alluminium in reserve, they won’t be putting it to productive use, in other words, they are letting their capital sit idle.
For all this detail, the article doesn’t mention that Goldman isn’t doing the hoarding. They are simply taking advantage of the rules to get some extra rental income. According to the article, prices have gone up by less than 2% because of this, since it isn’t up to Goldman when to sell the aluminum. THey are simply holding it for someone else.
Simple solution which fixes this and all other attempts to corner the market on metals is to eliminate any inventory taxes on end users stockpiles. Let the big metal users keep as much as they can afford on hand. Eventually there will be enough companies worried about supply disruptions that they will keep a higher average number of days on hand. With low margins on products they will invest in security of their business and tend to keep more on hand. This will reduce price volatility and make our country less vulnerable to import disruptions.
Hmmm. Looks like I should be building some warehouses to deliver a better solution for these customers. I bet I could get some residential property cheap in New Orleans and have it rezoned. Construction would be dirt cheap in this economy.
If there is a mountain in the way go around it.
I’m curious abut what sort of person is still doing business with GS. I mean, don’t we all agree that they are the problem?
I think that Anonymous should publish the names and addresses of all GS employees and customers.
That way, after the economic collapse and NYC is in anarchy and the people there have nothing to eat but each other, at least they will have a list of nice plump GS people to pick from.
GF, Goldman would find a way to foil your plan.
Is “aluminum” anthing like aluminium? or is it a different metal of some sort? I have never heard of this mysterious metal… what would it be used for?
Egon,
There is only one iota’s difference between the two.
This article and the comments are no where close to the total picture over all! Before I retired from being a professional international freight relocation technologist [aka transborder truck driver] I hauled many a load of various metals: Zinc sows [flat ingots], Aluminum sows, steel, copper, tin ingots, and various scrap bales, even the grindings of stainless steel for alloy reclaimation.
One of the storage sites was the U.S. Military strategic stock pile just East of Indianapolis which decided to sell off some of the “surplus” high purity Zinc, which I hauled back to Toronto to a company that burns it in an Oxygen atmosphere to produce pharmaceutical Zinc Oxide!
How much of each commercial metal and alloy is stored in the caves along the banks of the Mississippi East of St. Louis? Who owns, and rents all of that storage?
Another factor is what grade of metal, and type of alloy is it? There are many alloys of Aluminum, for many different uses. The Aluminum Silicon for auto engine block castings is far different from the alloys and pure Aluminum for cold drawn wire, or the rolled out foil for potato chip bags. One 53′ trailer load of those huge rolls of foil probably make a couple of million food bags!
As for the price paid and what the value declared at Customs, that was never any of my concern, as I did not have to pay for it, nor be responsible for the veracity of the declarations!
As for storage, there is more storage on freight trailers on the move or parked in the “Just Not Enough Time Delivery for Mfg” than thatwhich is stock piled from what I could see.
And no doubt that has changed somewhat in the 1/2 decade I have been retired!
It is my experience that high volume just in time delivery commodities for mfg do not end up sitting in high priced warehouses, but the finidhed goods just may!
So THAT’S what the old Chinese ladies with purple jackets and baseball caps are doing.