Goldman Sachs Group Inc. said it’s offering end-user clients a faster way to get aluminum that’s in warehouses it owns as the bank laid out proposals to address concerns about limited supply.
So far no client has accepted the bank’s offer to swap their metal stuck in queues for immediately available aluminum, Goldman Sachs President Gary D. Cohn said in a CNBC interview. Consumers should be prioritized over other clients in getting aluminum out of warehouses and the London Metal Exchange system needs more transparency, Goldman Sachs said in a statement today.
“We feel horrible for consumers if they can’t get metal; we don’t believe that to be the fact,” Cohn, 52, said.
The beverage industry has complained that banks and other warehouse owners are manipulating aluminum supplies and slowing deliveries to drive up the price. Goldman Sachs said that while longer queues in recent years have been a factor in the premium of physical metal over the spot price, the waits are not driving up the overall price of aluminum, which has fallen since 2006.
Goldman Sachs’s offer is “great news and any pricing manifestations due to warehousing issues will hopefully resolve going forward,” Commodity Futures Trading Commission member Bart Chilton said. “This entire matter continues to raise the larger issue of banks owning physical commodities, warehousing and delivery mechanisms.”
Costs were inflated by $3 billion worldwide in the past year because of the backup in aluminum supplies, Tim Weiner, a global risk manager at brewer MillerCoors LLC, told a U.S. Senate panel last week.
Goldman Sachs has secured metal directly from producers to be able to swap with end-user clients, Cohn said. The firm has made the offer at the LME spot price with no premium, according to a person briefed on the talks who asked not to be named because the offers were private.
“We are consulting with the metals trade and industry on a proposal to amend the delivery out obligations of warehouse companies with long queues, and we encourage market users to contact us with their views,” Miriam Heywood, a spokeswoman for the LME, said in an e-mailed statement.
In February 2010, Goldman Sachs bought Romulus, Michigan- based Metro International Trade Services LLC, which as of July 11 operated 34 out of 39 storage facilities licensed by the LME in the Detroit area, according to LME data. Goldman Sachs said in today’s statement that it isn’t involved with the daily management of the company.
Goldman earlier this year had considered selling Metro, according to a person briefed on the discussions. The bank must sell the company within 10 years of its purchase, it said today.
JPMorgan Chase & Co. said last week that it plans to get out of the business of owning and trading physical commodities ranging from metals to oil, days after a Senate panel questioned whether banks are abusing their ownership of raw materials to manipulate markets.
Cohn said that while his firm will sell Metro at the “appropriate time,” it doesn’t have plans to get out of other commodity businesses.
“Commodity hedging is a core competency and one of the most important things we do in the firm, and our clients really need us to be in that business,” Cohn said. “We are staying in the commodity-hedging business.”
Glencore Xstrata Plc, the biggest publicly traded raw- materials supplier, became the largest owner of warehouses monitored by the LME as banks pull back amid increased scrutiny by lawmakers and regulators.
Low interest rates have encouraged some investors to buy and store aluminum with the intent of selling it at a later date, Goldman Sachs said. Warehousing companies, which don’t own the metal they hold, offered incentives to attract supply, according to research from Societe Generale SA.
Many market participants have sought to move metal to non- LME warehouses, where storage rates are lower, prompting the longer queues, Goldman Sachs said.