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Senate to hear role of banks in warehouses

Keywords: Tags  Senate, hearing, warehouse, LME, Detroit, Vlissingen, Aleris, Novelis Midwest premium


CHICAGO — The U.S. Senate plans to hold a hearing July 23 about whether banks should be allowed to control warehouses as concerns mount among some aluminum producers and consumers about the involvement of the financial community in the market.

Timothy Weiner, global risk manager of commodities/metals at MillerCoors LLC, is among the witnesses expected to speak before a Committee on Banking, Housing and Urban Affairs subcommittee focused on financial institutions and consumer protection. Also speaking is Joshua Rosner, managing director of New York-based investment research firm Graham Fisher & Co. and co-author of the book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon.

In addition, Saule Omarova, a professor at the University of North Carolina at Chapel Hill law school, is expected to speak. Omarova has written over the past decade about how big banks have become “leading global merchants in physical commodities” including base metals, with little regulatory oversight of their activities.

Metal consumers have become disgruntled by historically high regional premiums for aluminum and speculation that financial institutions, through warehouse ownership stakes, are able to drive up premiums and constrain supplies even when stocks are high( amm.com, June 27).

Some aluminum producers have voiced similar concerns.

Warehouse queues have caused aluminum premiums to rise and pose a threat to the industry’s long-term future, Novelis Inc. vice president and Novelis North America president Tom Walpole said earlier this year ( amm.com, Jan. 23).

The Midwest aluminum premium is a “bubble” that’s set to pop because it is driven by the financial community rather than supply and demand, Theodore Lehmann, vice president of metals procurement for the Americas at Cleveland-based Aleris International Inc., said on the sidelines of an AMM event ( amm.com, June 20).

The Senate hearing also comes in the wake of the London Metal Exchange proposing rules aimed at trimming long lines at some registered warehouses. Under new exchange proposals, warehouse companies would be required to deliver out more metal than they draw in at storage locations with long load-out queues ( amm.com, July 1).

But some market sources have argued that the proposed rules don’t go far enough and would do little more than preserve the status quo ( amm.com, July 11). 

JPMorgan Chase & Co. acquired Henry Bath in February 2010 as part of its purchase of RBS Sempra’s metals trading business, the same month Goldman Sachs bought Metro International Trade Services LLC. Trafigura Ltd. acquired Nems in March and Glencore International Plc followed in August with its purchase of Pacorini Metals BV.


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