Goldman Sachs faces probe over fixing aluminium prices
The Commodity Futures Trading Commission has issued subpoenas to Goldman and owners of other major warehouses as part of its inquiry into irregularities in the aluminium market that are believed to have cost consumers billions of dollars since 2010.
The subpoenas seek documents, emails, correspondence, voice recordings and other records concerning the warehouse operations dating back to January 2010, according to two people familiar with the documents. They also demand documents and correspondence regarding the London Metals Exchange, a private trade association that regulates warehousing.
Goldman bought Metropolitan International Trade Services, a string of Detroit-area metals warehouses, in 2010 and soon afterward beverage makers and manufacturers began complaining the company was restricting outflow of metal and causing lengthy delays in delivery. Those waits, which grew from six weeks in 2010 to around 16 months now, mean higher storage costs for metal owners, who are charged rent by the day.
Because of a quirk in the formula used to set the price of aluminium on the spot market, the delays also increase the prices nearly all manufacturers pay even when they buy metal not stored in a warehouse.
Industry analysts and beverage makers estimate long queues cost manufacturers and consumers more than $US5 billion ($5.45b).
Federal regulators began examining the metals warehouses last month, after The New York Times reported Metropolitan had been paying metal owners an incentive to move their aluminium from one warehouse to another, which contributed to the delays. Goldman president Gary Cohn recently said its warehouse subsidiary did not violate any laws or regulations and never sought to inflate prices.
Beverage manufacturers and the aluminium sheet supply company Novelis have asked the Justice Department to look into whether the warehouse operations violated antitrust laws.
Frequently Asked Questions about this Article…
The Commodity Futures Trading Commission (CFTC) has subpoenaed Goldman Sachs as part of an inquiry into whether metals warehouses intentionally delayed aluminium deliveries and inflated prices. Everyday investors should care because regulatory probes can affect a company's reputation, lead to fines or legal costs, and create short-term market volatility for related stocks and commodities.
The subpoenas seek documents, emails, correspondence, voice recordings and other records related to warehouse operations dating back to January 2010, plus communications involving the London Metals Exchange (LME), the private trade association that helps regulate warehousing.
According to the article, lengthy warehouse queues raise storage costs because metal owners are charged rent daily. A quirk in the formula used to set aluminium spot prices means those delays can push up the market price that nearly all manufacturers pay, even if they buy metal not stored in the affected warehouses.
After Goldman bought Metropolitan International Trade Services in 2010, delivery waits reportedly grew from about six weeks in 2010 to around 16 months in more recent times, according to manufacturers and industry commentary cited in the article.
Industry analysts and beverage makers estimate that long queues and the resulting price effects have cost manufacturers and consumers more than US$5 billion (about $5.45 billion), as reported in the article.
Goldman president Gary Cohn said the bank’s warehouse subsidiary did not violate any laws or regulations and never sought to inflate prices, according to the article.
Beverage manufacturers and the aluminium sheet supplier Novelis have asked the U.S. Justice Department to investigate whether the warehouse operations violated antitrust laws, in addition to the CFTC’s subpoenas.
Yes — the subpoenas also demand documents and correspondence related to the LME, which regulates warehousing practices. That matters because any findings about LME rules or oversight could affect how global metals pricing and storage are managed, with potential implications for commodity markets and companies exposed to aluminium prices.
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