For the second time in as many weeks, key commodities companies have been slapped with lawsuits alleging that the two banks boosted aluminum prices by manipulating warehouse stockpiles. Today’s lawsuit in Florida names Glencore Xstrata, J.P.Morgan Chase & Co. (NYSE: JPM), Goldman Sachs Group Inc. (NYSE: GS) and the London Metals Exchange (LME) of antitrust actions and racketeering. Goldman and LME were sued in Detroit for similar actions.
According to a report from Reuters, the Florida suit was filed by Master Screens and an individual “purchaser of beverages sold in aluminum cans,” and it alleges that the defendants manipulated the aluminum market by price fixing. Both Goldman and J.P. Morgan have said that the suit has no merit.
The issue has been simmering for a few years now, really ever since aluminum came off its highs of 2006 and 2007. As banks were allowed to get into the trading of physical commodities in 2003, acquiring warehouses and charging for storage has been a nice profit maker. The banks are charged with failing to fill orders from customers promptly, causing delays that then force those customers — who already own the aluminum in the warehouse — to buy the metal on the spot market from producers like Alcoa Inc. (NYSE: AA) and Rio Tinto PLC (NYSE: RIO).
Last week Goldman posted a statement on its website responding to the charges of long queues and wait times to get metal out of its Detroit warehouses. The bank claims that its warehouse inventory grew as the price for aluminum fell, and then “many market participants sought to retrieve metal” seeking to store it in less expensive, non-LME warehouses. According to Goldman, this created a queue, which makes sense, of course, but it is a little hard to swallow that the queue was so long that it lasted for more than a year in some cases.
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