An aluminum processing company has launched a class-action lawsuit against Goldman Sachs and the London Metal Exchange alleging that they conspired with each other to restrain supplies of aluminum in the LME warehouses and inflated aluminum prices.
The complaint accuses the two companies of violating the Sherman Anti-Trust Act by agreeing to operate in “an extremely inefficient manner” and to “provide extremely low quality of service” in the warehousing arena.
The class-action suit, brought by Superior Extrusion, Inc. et al., comes shortly after a New York Times article broke the story that Goldman Sachs was profiting – at the expense of U.S. consumers – by deliberately lengthening the storage time for aluminum in the Detroit area LME warehouses it bought in 2010. Goldman charges rent to store the metal, and instead of releasing it quickly, the company shuttles it around from one warehouse to another, continuing to collect the rent. The company has had a monopoly over LME warehousing space since it purchased warehouses in the Detroit area. More than a quarter of the supply of available aluminum is kept in the company’s Detroit warehouses, according to the New York Times story.
The suit alleges that Goldman stores more than 50 percent of the aluminum stored in parts of the U.S. that base transactions on the Midwest Premium or Platts MW Premium aluminum.
Companies that produce aluminum cans for beer and sodas have been complaining that long delays in getting their aluminum out of storage have resulted in higher spot prices. LME customers have reportedly waited as long as sixteen months to receive their aluminum.
The complaint also alleges that Goldman “overbid other market participants and further inflated aluminum prices as a means to attract and divert additional aluminum in the Midwest U.S. to store in its LME Detroit Warehousing.” It accuses Goldman of offering up to $250 per ton incentives to firms to store their aluminum in LME’s Detroit warehouses for lengthy periods.
During the economic recovery in 2010-2013, the amount of aluminum stored in Detroit Warehousing should have declined from 900,000 tons to less than 400,000, according to the complaint, but instead it has increased to more than 1,400,000 tons.
Goldman had a stake in the LME valued at $203 million when the LME was sold to Hong Kong Exchanges and Clearing for $2.15 billion.
JP Morgan was the LME’s largest shareholder. However, JP Morgan recently said it would sell its physical commodities business, after it was investigated by FERC for manipulating energy markets in California and the Midwest. After an investigation into Goldman Sachs was announced, Goldman said it would sell its LME Detroit Warehousing. When the LME was acquired by HKEX, the new owners announced they would change their warehouse queuing rules to insure that metal was delivered more quickly, but some customers clearly don’t feel that has had much of an effect, if any.
The Federal Reserve is now looking at a ten-year-old policy that allows banks to hold physical commodity assets, according to the Wall Street Journal.