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Goldman warns of volatile prices if LME changes rules

Keywords: Tags  Goldman Sachs, LME, London Metal Exchange, warehouse queues, Mark Burton


LONDON — The London Metal Exchange’s proposed measures to reduce queues across its warehouse network will potentially increase price volatility and reduce transparency, according to Goldman Sachs Group Inc.

The proposals would have no impact on physical prices, "since the queues do not impact the fundamentals of the aluminum market," the New York-based bank said in a research note to clients Oct. 31.

"We find that ‘managing’ the queue by the LME could have significant direct costs in the proper functioning of the exchange, which can increase price volatility and indirect social costs by reducing transparency as more metal moves off exchange," Goldman said.

At a board meeting in late October, the LME voted on rules to reduce queues below 100 days by forcing warehouse companies such as Goldman-owned Metro International Trade Services LLC, which has its stronghold in Detroit, to deliver out more metal than they drew in at logjammed ports. The results of the vote haven’t yet been made public.

Goldman Sachs is currently facing multiple lawsuits alleging that it has manipulated aluminum prices by withholding metal from the physical market through its ownership of Metro International (amm.com, Sept. 27).

A version of this article was first published in AMM sister publication Metal Bulletin.


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