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article imageBanks hoarded aluminum to hike prices, critics charge

By Kelly Fetty     Aug 21, 2013 in Business
Washington - The U.S. Commodities Futures Trading Commission (CFTC) has subpoenaed both Goldman Sachs Group Inc. and JPMorgan Chase & Co. as it investigates allegations of price-fixing in the aluminum market.
In addition to the CFTC probe, at least four class-action lawsuits have been filed in federal courts in New York, Michigan, Louisiana and Florida by individuals and companies accusing the banks and other warehouse owners of stockpiling aluminum in order to artificially drive up prices.
Goldman Sachs Group Inc. purchased Metro International Trade Services in 2010, giving the bank control of 27 warehouses holding "more than 50% of the total aluminum in warehouse storage in the United States," according to a complaint filed by aluminum product manufacturer Superior Extrusion.
JPMorgan Chase & Co. owns warehouse operator Henry Bath .
All the warehouses in question are licensed by the London Metal Exchange, the world's largest market in options and futures for non-ferrous metals such as zinc, aluminum and copper.
In addition to owning LME licensed warehouses, the banks also sat on the LME Warehouse Rules and Regulations committee.
Critics charge that LME warehouse rules have forced consumers to wait 18 months or more for aluminum or pay a high premium for immediate access. This artificially inflates prices, they claim.
LME warehouse rules cost companies using aluminum $3 billion last year, according to MillerCoors global risk analyst Tim Weiner.
Weiner made the claim in written testimony to the Senate Committee on Banking Financial Institutions and Consumer Protections last month.
"What’s most concerning is that all the key elements of the LME (ownership/warehousing/ policy control) for aluminum and other base metals worldwide, are controlled by the same entities – bank holding companies," he wrote.
Goldman Sachs has denied the allegations, saying it has not broken any laws and that the stockpiles in its Detroit warehouses are too small to influence prices. On July 31, a week after reports of the CFTC probe surfaced in the media, Goldman Sachs also offered companies immediate access to its aluminum.
JPMorgan Chase has also denied the allegations. In July it announced it would leaving the physical commodities market.
The London Metal Exchange was sold to Hong Kong Exchanges and Clearing in June 2012. As of August 18, 2013, the LME has declined to comment on the investigation.
Aluminum is "one of the few products and industries left in America that truly impacts every community in the country," according to the Aluminum Association. Aluminum is used in a broad range of consumer goods, including car parts, soda and beer cans, food packaging, foil, cookware, computers and sports equipment.
According to a recent New York Times report, "Wall Street’s maneuverings in the commodities markets have added many billions to the coffers of investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more for gasoline, electricity and a wide range of products, from cars to cellphones."
Pressure has been growing on federal regulators to take companies to court rather than accept settlements. After JPMorgan Ventures Energy Corp agreed to a $410 million settlement with the Federal Energy Regulatory Commission in July, Massachusetts Senators Elizabeth Warren and Edward Markey pointed out that the fine was"equal to roughly 1.3 percent of JPMorgan's 2012 profits," and asked why company did not have to admit guilt.
In July, U.S. Securities and Exchange Commission (SEC) chair Mary Jo White announced that the SEC will also examine the role of banks in physical commodities trading. The Federal Reserve has also announced that it will re-examine the 2003 ruling that permitted banks to trade in physical commodities.
More about Goldman Sachs, Jpmorgan chase, commodities trading, US Commodity Futures Trading Commission, London Metal Exchange
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