CHICAGO The Commodity Futures Trading Commission (CFTC) should look into allegations that aluminum warehouse owners in the United States may be using London Metal Exchange rules to manipulate aluminum prices in potential violation of commodity exchange rules, the head of the Senate Agriculture Committee said July 30.
U.S. warehouses governed by LME regulations may be "slow-walking" aluminum deliveries to bolster profits from storage fees, according to Sen. Debbie Stabenow (D., Mich.).
"Buyers of aluminum allege that the current market price of aluminum is being skewed by those who own and profit from the storage of metal at warehouses," Stabenow said in a letter to CFTC chairman Gary Gensler.
Consumers claim that LME warehouse rules "have been set by and for the benefit of those who stand to profit from the rules, even if it works against consumers and a fair market price," Stabenow said, noting that the impact on prices may be hitting consumer goods such as beverage cans and cars.
Entities controlling both physical aluminum supplies in warehouses as well as derivatives linked to those supplies implies "a potential for price manipulation," she said.
Stabenow asked whether the CFTC had jurisdiction over U.S.-based warehouses or the LME and, if the agency does not, what measures it might recommend that Congress adopt. "We need to determine if there are any gaps in oversight and whether there is sufficient authority to deal with those gaps," she said.
Stabenows comments came after Sen. Sherrod Brown (D., Ohio), chairman of the Senate Banking Committees subcommittee on Financial Institutions and Consumer Protection, said he wanted to see the U.S. Federal Reserve issue "clear guidance" on bank holding companies and non-bank activities, such as involvement in physical commodities operations, which he said saddles both banks and taxpayers with too much risk (amm.com, July 25).
A subcommittee hearing saw big banks come under fire, with Goldman Sachs Group Inc.s ownership of warehousing company Metro International Trade Services LLC facing scrutiny due to long waits for metal and potential conflicts of interest, given Goldmans role in both aluminum storage and trading. Goldman has denied the allegations (amm.com, July 24).
The LME said it has worked since 2010 to shorten warehouse queues, and argued that there was no aluminum shortage in the market. It noted that it is legally prevented from capping rents or preventing trading companies from owning warehouses (amm.com, July 23).
Goldman bought Metro in February 2010 (amm.com, Feb. 19, 2010), the same month that JPMorgan Chase & Co. acquired the Henry Bath warehousing company.