Several witnesses indicate they could support increased regulation of their activities.
RENO (MINEWEB) – As Goldman Sachs, JPMorgan and Morgan Stanley defended their commodities activities before the Senate Permanent Subcommittee on Investigations Thursday, the world’s largest aluminum consumer and U.S. senators argued the lack of adequate regulation is hurting consumers of aluminum, copper and other commodities.
At least two of the Wall Street banks under investigation by the U.S. Senate told the subcommittee they are in the process of or have eliminated their ownership of assets such as power plants and oil tankers, and substantially lowered their physical copper holdings.
However, two executives involved in and around the aluminum industry asserted Goldman Sachs’ Metro International Trade Services warehousing interests are having “a profoundly negative impact” on aluminum consumers. Goldman, which is in the process of selling Metro, is not about to get out of the commodity trading business or physical committees.
Jorge Vasquez, managing director of HARBOR Aluminum Intelligence, told the subcommittee Thursday that the London Metal Exchange (LME) “has partially failed as an effective ‘market of last resort’ for the aluminum consumer (the manufacturers of aluminum semi-finished products”.
“For example, HARBOR estimates that North America will end 2014 with a primarily aluminum production shortfall of 2.4 million MTON [metric tons] of aluminum (about 39% of its annual consumption),” he observed.
“Although today, LME warehouses in Detroit hold over 1 million MTON of aluminum – which equates to 80% of the total LME metal stored in North America and 17% of annual consumption in the region – a consumer of aluminum who would like to turn to the LME as a market of last resort faces a load-out waiting time of 655 calendar days. This long waiting time and the capital requirements to source the metal out from the warehouse make it prohibitive for the consumer to use the LME as a viable source of last-resort supply,” Vazquez stressed.
Nick Madden, senior vice president and chief supply chain officer for Atlanta-based Novelis Inc., the world’s largest buyer of aluminum, said the company “has been consistent in its criticism of the LME since 2011 when we realized how serious the warehousing issue could become”.
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