By Joe Vladeck
Who knew the aluminum market was so bizarre and fascinating?
For years global financial and commodities powerhouses have been engaged in
"a
merry-go-round of metal," stockpiling aluminum and shuffling the
metal between warehouses with no real intention of actually, you know, selling
it.
The practice served several functions, ranging from
understandable to opportunistic. During the financial crisis, when liquidity
was tough to come by, parties looking to raise working-capital used unprocessed
aluminum and other metals as collateral. In that respect, the metal trades
helped grease the rails of the global financial system when it was struggling
for momentum. More recently, finance firms such as Goldman Sachs discovered
huge windfall profits in artificially extending the storage time before
aluminum is turned into beer cans or foil. Goldman Sachs, for example, often
shuttled aluminum from one Detroit-area warehouse to another for 16 months
before selling it.
This latter practice was unmasked by a fascinating New
York Times expose in July. In response, the London Metal Exchange (LME),
the world's most important metal marketplace, recently revised its aluminum
policies: the allowable "wait time" for stored aluminum has been
reduced to 50 days, and LME has instituted a series of incentives to keep the
aluminum flowing, so to speak.
Reuters
and The
Wall Street Journal have the story on the LME's new policies.
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