Its not often that a routine part of metals industry processes makes national headlines, but thats what happened this summer when Goldman Sachs Group Inc. was accused of manipulating the aluminum market by deliberately restraining the flow of material exiting London Metal Exchange-listed warehouses. The issue also has garnered the attention of a Senate oversight committee and the Commodity Futures Trading Commission.
New York-based Goldman Sachs--along with subsidiaries Metro International Trade Services LLC and GS Power Holdings LLC, the LME and, in one instance, JPMorgan Chase & Co. and commodities group Glencore Xstrata Plc--has been slapped with several antitrust lawsuits.
Garden City, Mich.-based International Extrusions Inc. alleged in a complaint filed in U.S. District Court in Michigan that Goldman Sachs, Metro International, GS Power Holdings, the LME and 10 other defendants named as John Doe hoarded metal in Detroit-area warehouses, restraining aluminum supplies available to physical metal users, and conspired to inflate aluminum prices, including Midwest premiums.
International Extrusions claimed in the lawsuit that Goldman, working with the LME, abused monopoly power over Detroit-area warehouses by amassing stockpiles of nearly 1.5 million tons of aluminum through get paid more to do less agreements and incentives of up to $250 per ton to put metal in sheds. That 1.5-million-tonne figure represents 27 percent of the 5.5 million tons of aluminum produced annually in the United States and triple U.S. imports of 500,000 tons per year, the company said.
Goldman and the LME also netted hundreds of millions of dollars in storage fees as overbidding and diversion agreements resulted in substantially less aluminum available for sale in the United States and wait times of up to 16 months for metal, International Extrusions alleged.
Similar complaints naming Goldman, other banks and trading companies, the LME or unnamed John Does have been filed by Superior Extrusion Inc., Gwinn, Mich.; Custom Aluminum Products Inc., South Elgin, Ill.; River Parish Contractors Inc., Reserve, La.; Viva Railings LLC, Lewisville, Texas, and Regal Recycling Inc., Howell, Mich.; Team Ward Inc., a Monticello, Ark.-based boat builder which does business as War Eagle Boats; and Cleveland-based Talan Products Inc.
Romulus, Mich.-based warehousing company Metro International, which Goldman Sachs acquired in February 2010, controls nearly half of the 160 LME-approved warehouses in the United States, including 78 percent of the 37 warehouses in Detroit, according to one of the lawsuits filed against Goldman and Metro that alleges, like similar cases, that the bank conspired to withhold metal from the market and drive up prices.
A complaint filed in U.S. District Court in Florida by Jacksonville, Fla.-based Master Screens Inc., a purchaser of aluminum products, and individual plaintiff Daniel Price Bart of Tallahassee, Fla., a purchaser of beverages sold in aluminum cans, is seeking class-action status to represent other aluminum buyers, accusing Goldman Sachs, JPMorgan Chase, Glencore and the LME of violating antitrust laws and in engaging in collusive practices and racketeering activity to restrain trade from Feb. 1, 2010, to the present, illegally extracting wealth on a national and global scale amounting to approximately $5 billion from the industry.
The lawsuit said that despite complaints about inflated aluminum prices, defendants continued to restrain supply and inflate prices, and had direct and indirect knowledge that they were inflating aluminum prices and injuring persons that paid those prices, especially the Midwest premium.
Goldman Sachs has responded to each of the lawsuits with a similar comment: We believe these suits are without merit and we intend to vigorously contest them. Goldman also has noted that aluminum prices are down 40 percent from their peak in 2006.
There are no queues at our warehouses and we believe the suit has no merit, a spokesman for New York-based JPMorgan Chase, which owns warehousing company Henry Bath LLC, said in an e-mail.
LME managements initial assessment remains that the suits are without merit and the LME will contest them vigorously, the exchange said.
A spokesman for Baar, Switzerland-based Glencore declined to comment.