Pacorini Metals, a unit of mining company Glencore Xstrata Plc, has the most Vlissingen depots and Goldman Sachs’s Metro International Trade Services LLC dominates in Detroit. Goldman Sachs and JPMorgan Chase & Co., which also has a warehouse unit, received subpoenas from the Commodity Futures Trading Commission, according to two people familiar with the probe. Glencore also was subpoenaed, another person said.
The LME last year doubled the minimum rate at which warehouse companies storing more than 900,000 tons at a single site must ship out metal. This year it introduced an extra delivery requirement for storage companies where withdrawal orders exceed 30,000 tons of a single metal, as well as separate minimum daily deliveries of tin and nickel.
While the steps “failed to resolve the persistently long waiting times” for supplies in some locations, the LME said in July, it’s legally restricted from limiting rents and unable to prevent trading companies from owning warehouses. Tim Weiner, a global risk manager at Chicago-based MillerCoors, told a U.S. Senate hearing on warehousing in July that “unfair” LME rules inflated global aluminum costs by $3 billion in the prior year.
Eighteen class actions were filed against the LME, of which nine named LME Holdings as co-defendant, Hong Kong Exchanges said yesterday. The LME said the lawsuits are without merit. Beverage makers have said banks and other warehouse owners are manipulating aluminum supplies and slowing deliveries to drive up prices.
While the new rules will permit more aluminum to leave warehouses, so-called financing transactions may still prevent supplies from reaching consumers. As much as 80% of the LME’s 5.35 million-ton aluminum stockpile and 60% of zinc inventories may be tied to the accords and unavailable for withdrawal, Societe Generale estimates.
“Financing of stock will continue to remain attractive, even with this 50-day cap,” the bank’s Bhar said. “It doesn’t mean that consumers will have more availability of physical metals. It would accelerate flow of metal from the LME system into the hidden system. This would seem to suggest that we would get less transparency, rather than more.”
Investors use the transactions to capitalize on markets in contango, when prices rise for later deliveries. The accords typically involve buying metal for nearby delivery while making a forward sale, with profitability influenced by the spread, rent charges and borrowing costs.
Hong Kong Exchanges bought the LME for $2.2 billion last year.