and trading companies have been ordered by the U.S. Commodity
Futures Trading Commission (CFTC) to preserve documents ahead
of a possible investigation into warehousing activities,
The ownership of
London Metal Exchange-listed warehouse companies by such banks
as Goldman Sachs Group Inc. and JPMorgan Chase & Co., as
well as large trading houses like Glencore Xstrata Plc, has
drawn criticism from physical market participants after large
incentives offered to suppliers to move metal into warehouses
sent physical premiums to record highs over the past year.
aluminum premiums peaked at $290 to $305 per tonne in January,
while the waiting times for deliveries from Metro International
Trade Services LLCs warehouses in Detroit, owned by
Goldman Sachs, and Glencore-owned Pacorini Srls
Vlissingen location in the Netherlands blew out to more than a
"We and others have
talked to regulators like the CFTC and the (Financial Conduct
Authority in the United Kingdom), and its become clear
that there is a gap in regulation over warehousing and some
aspects of the commodities business," one aluminum consumer
said. "As long as there is a lack of regulation, and as long as
banks continue to operate, we will continue to see anomalous
Regulators are now
preparing for a thorough review the warehousing business and
the role that banks and trading companies play within it, and
sources said this could lead to action being taken to limit the
role of banks and trading companies within the warehousing
"If implemented, this
will address the queue problem," one trader said.
It comes as a U.S.
Senate Committee on Banking, Housing and Urban Affairs
subcommittee focused on financial institutions and consumer
protection prepares to meet in open session July 23 for a
hearing aimed at examining financial holding companies and
whether banks should control power plants, warehouses and oil
amm.com, July 17).
On July 1, the LME
proposed new rules concerning warehouse delivery rates in an
attempt to alleviate the huge delivery queues that have
developed at certain warehouses. The exchange has suggested
linking daily stock inflows and outflows to steadily reduce the
queues at locations where they have grown beyond 100 days.
Aluminum premiums fell
as warehouse incentives dipped following the announcement.
A version of this
article was first published in AMM sister publication Metal