From the Wall Street Journal:
Wall Street Gets Eyed in Metal Squeeze
Goldman Sachs Group Inc. and other owners of large metals warehouses are being scrutinized by the London Metal Exchange after being accused by users like Coca-Cola Co. of restricting the amount of metal they release to customers, inflating prices.HT: MarketBeat
The board of the LME met on Thursday to discuss complaints from aluminum users and market traders, who say operators of warehouses, which also include J.P. Morgan Chase & Co. and Glencore International PLC, should be forced to allow the metal out more quickly to meet demand.
Aluminum prices have jumped 13% since the start of 2010 even though economic growth had been tapering off. Aluminum for delivery in three months on Thursday closed at $2,557 a metric ton on the LME, down 1.3% on the day.
Goldman, through its Metro International Trade Services unit, owns the biggest warehouse complex in the LME system, a series of 19 buildings in Detroit that house about a quarter of the aluminum stored in LME facilities.
Coca-Cola and other consumers say that Metro in particular is allowing the minimum amount of aluminum allowed by the LME—1,500 metric tons a day—to leave its facilities, and that Metro could remove much more, erasing supply bottlenecks and lowering premiums for physical delivery in the process.
Coca-Cola, which has complained to the LME, says it can take months to get the metal the company needs, even though warehouses are allowing aluminum to come in much more quickly. Warehouses, meantime, collect rent and other fees.
"The situation has been organized artificially to drive premiums up," said Dave Smith, Atlanta-based Coca-Cola's strategic procurement manager. "It takes two weeks to put aluminum in, and six months to get it out."...MORE