July 23, 2013
Should You Believe That Goldman Sachs Is Fixing Aluminum Prices?
Posted by David Zaring

One the one hand, those prices are set by a commodity exchange, which, in theory, the firm would have to corner to set prices.  And getting around a "you must deliver 3000 tons of aluminum to the market every day" rule by delivering it to other warehouses in Detroit that you own hardly seems like effective subterfuge.  If anything, it is too dumb a regulatory compliance strategy to be possibly what the firm had in mind.

On the other hand, since GS bought the firm that stores 25% of the nation's aluminum, the market has changed.  That is,

Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

If lengthy delivery delays began the second that Goldman bought the firm, that's something.  And if the idea is that creating delivery delays makes the future price of alumninum higher than the present price, there could be a reason to create those delays.

But in my view, the jury is still out.  Maybe that's only because it is inherently pretty hard to write about these sorts of trades in a way that makes sense in New York Times levels of space.  We'll see if the hearings are more revealing, as well as if the very busy CFTC has the resources to chase the story.

Administrative Law, Finance, Financial Institutions | Bookmark

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