Aluminum is everywhere, from soda cans to car bodies, but news reports indicate that consumers have been paying too much for it. This summer, The New York Times reported that the Goldman Sachs subsidiary Metro International Trade Services — a warehousing firm — was stretching out the time it takes for aluminum buyers to receive their metal. This slowdown has allowed Metro International to collect additional warehousing fees. According to the Times, market insiders estimated the practice cost US consumers over $5 billion over the last several years. Major aluminum consumers such as Coca-Cola and brewer MillerCoors LLC are calling on Goldman Sachs, the formidable investment bank, to speed up the lines at its subsidiary’s warehouses. A Senate hearing on the issue was expected early this month, but apparently was delayed by the government shutdown.
Long waiting times are only a symptom of a larger problem facing the commodities market. Before 2003, the companies that made money speculating on commodity values and the companies that provide services — such as warehouse space — to consumers of these commodities had to be separate. But since a Federal Reserve ruling a decade ago, financial institutions have been able to buy and trade commodities, while also holding companies such as Metro International. Such combos have both the means and a financial incentive to create artificial scarcities. In 2010, J.P. Morgan was accused of manipulating the market to increase the value of copper it owned. Only under intense pressure from regulators did the company announce it would be exiting the physical commodities market.
Due to the havoc wreaked on the aluminum market by Goldman Sachs, the Federal Reserve has begun examining the consequences of allowing Wall Street institutions into the commodities arena. All players in the commodity market are best served by a system that is transparent and efficient.
Source: Boston Globe