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.
Why does Goldman Sachs screw the markets and consumers? Why do dogs lick their balls?
Obviously, because they can.
Show me a Rich Man, and I’ll show you a crook 50% of the time.
Show me a Bankster, and I’ll show you a crook all of the time.
We DO NOT NEED REGULATION of Wallstreet: they simply need to be outlawed.
Easy Peasy.
Isn’t a whole point of trading something there in order to own something?
Yet another spin story day after day on Dvorak.
Company legally OWNS something.
Company legally TRADES what it owns.
Company makes money from legal trades….
We do not live in Communism. Al belongs to Goldman. They bought it. It is theirs. You do not own it, EU doesn’t, UN doesn’t, US Government doesn’t. If anything requirement should be to do exactly what Goldman does with all trades – to trade something you must own and store it. That eliminates true speculators who can do electronic scams with no cost to them. This is not a scam but true live and well market.
dismal–if GS owns 1/4 of the world’s reserve, seems they must own a higher percentage of the North American market? Cornering a market so as to control its price thereby NOT ALLOWING the free market to set the price is ……..wait for it……illegal.
“Sounds like” you confuse illegal monopolistic abuses of unregulated capitalism with “free market.”
Same as it ever was.
Must be part of that new “customer focus” announcement from GS yesterday wherein they proclaim they want to make money for customers and not themselves.
Goldman doesn’t own this aluminum. If they are collecting rental income, that means they are storing it for someone else. It is the someone else who is not selling. Being in charge of storage probably gives them some inside knowledge.
This is probably influenced by the Obama Administration which is in tight with Goldman Sachs. The benefit? By restricting the supply of aluminum, this encourages recycling. The Obama Admin loves incentivizing behaviour changes.
MikeN…The Obama admin loves it just as much as any other admin. Remember NCLB, his abstinence-only curriculum giveaway, and of course this.
SSDD
Good ole green movement. Making your life financially unsustainable my making your existence sustainable.
So we should all hoard our beer cans and hold out for a 10 cent CA REDEMPTION VALUE?
Incidentally, in CA, you DON’T get your “deposit” back on your cans or bottles. You only get a bit of it back. Nice. In the fifties, I earned enough one summer to buy my first radio. Ah, life was good then. Really good. People knew their place, and there was an order to things.
Now, everyone is an uppity shit, demanding everything be done for them. But I digress.
Here’s the important line from the article:
“LME rules stipulate that warehouses must deliver a certain amount of metal each day. However the rules apply not to each warehouse but to each city that a company has warehouses in.”
So basically, there’s a rule (probably put in place deliberately years ago) and Goldman has devised a way to squeeze money out of it.
This is not unfettered free-market capitalism or an attempt to corner the market. It sounds to me like a regulation that needs to either be eliminated, or changed to correct the problem.
And, of course, whatever happens, Goldman will try to figure out a way to make money from the change.
You could pass a law saying everyone has to be nice to each other and play fairly and Goldman (and others) would still try to game the system.
This is why we need to SOAK THE RICH !!! So they don’t have the resources to “Corner” markets and jack prices up, monopoly style !!!
P.S. Your “Bail-Out Money At Work” – Goldman SCREWS THE WORLD – AGAIN !!!
#13 Chuck, see my #14 – If we soak the rich they don’t have the resources to set up PARASITIC “MONEY MACHINES” JACKING UP PRICES !!! This happens to all commodities, including food, so the Bankers and Brokers are responsible for the STARVATION AND DEATH AROUND THE WORLD – ALL IN THE NAME OF “PROFITS” !!!
As much as I despise Goldman Sachs, I don’t see that they are doing anything particularly wrong. They are trying (successfully) to raise the price by corning the market for aluminum. Illegal, perhaps, but that’s true of damned near everything these days. If Goldman wants to buy up and hoard aluminum to drive up the price, that’s it’s fine, in a free world.
The market responses are: 1. use less aluminum, after a while, demand goes down, price goes down. 2. new or old players get busy and mine/produce more aluminum, increased supply results in lower prices.
These schemes never work for long. See the Hunt Brothers and silver from 25 years ago so so. See OPEC (who still has some influence, but nothing like they did before the North Sea oil was discovered).
On the other hand, Goldman Sachs is, as far as I know, a corporation, and therefore exists at the fancy of the state and is protected from liability by the state, and should be subject to government fiat as a condition of its existence.
God I hate Tea Tard Republicans.
>The Obama admin loves it just as much as any other admin. Remember NCLB
No, these guys are much more into it. Even an executive order to encourage lifestyle behavior modification.
So for all these details, they point out a price increase of less than 2% due to this warehousing, and maybe less than 1%.
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.