Why aluminum prices are up; copper to follow

So, Golden Sacks is driving aluminum from one warehouse to another, and then back again, to drive up prices for "warehousing" it.

Meantime, JPMorgan bought up more than half of the copper warehoused for the US market, planning to do the same thing.

As EA says, it's time to bend over:

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Reply to
Ed Huntress
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I read the article with great attention and, while it is intelligently written, I do not "get it". I do not see why an industrial consumer of aluminum needs to buy it from those warehouses. They can go straight to any aluminum producer or wholesalers.

My best understanding of the story is that the storage costs are imposed on commodity speculators who own metal and use it as collateral, but do not hold it themselves. My heart does not really hurt for them.

i
Reply to
Ignoramus8648

Two points: Golden Sacks now controls 25% of the aluminum in the US, and that's enough power to drive up the spot price for everyone else. If you ignore G-S's stock, that would mean 100% of the market was chasing 75% of the supply -- kaBOOM! go prices.

They're running a scam, Iggy. They're exploiting a London Metals Exchange rule that allows them to lard billions of dollars on top of the commodity price, for "warehousing" it.

They're not allowed to keep it in a warehouse for very long under those rules, so they load up a truck and cart it off to *another* of their warehouses. Then the truck returns to the first warehouse with aluminum from the second warehouse.

They're skimming off billions of dollars, and it's all legal.

Isn't it great when you set the rules that control your own business?

Reply to
Ed Huntress

One more thing: The bottom line on all of this is that it has cost us consumers over $5 billion over the past three years.

Reply to
Ed Huntress

Bunky Hunt redux with different metals.

Think they will get a bailout when it blows up?

Will Bernanke buy up those troubled assets?

Best Regards Tom.

Reply to
Howard Beal

I don't think it will blow up. The only thing that will get in its way is new regulations.

What do you think the chances are of that, with his Congress?

Maybe the London Metal Exchange will step in. They can do so if they want to. The set the warehousing rules for companies that trade on the LME.

Reply to
Ed Huntress

Whether this cost is consumers' cost, is exactly what is not so obvious to me.

I think that this weird warehousing scam costs the speculators who pay for warehousing services, as opposed to aluminum producers or direct (off exchange) buyers of aluminum, or to the end users of aluminum that was never sold on exchanges.

These costs are real, and Goldman is running a scam, but they are speculators' costs, not consumer costs. I am quite convinced that I am right.

I have a MBA degree from the University of Chicago, and I studied quantitative finance, and when they discuss pricing of commodity futures, the futures price depends on 1) interest rate and 2) storage costs. This is true of any commodity and affects no-arbitrage pricing.

Storage costs is what Goldman is jacking up. But that only affects futures pricing and settlement. It has no effect on off-exchange aluminum trading.

i
Reply to
Ignoramus8648

Goldman does not own that aluminum. Goldman only invented a way to rip-off LME futures speculators, who "own" aluminum, but pay Goldman to store it.

i

Reply to
Ignoramus8648

If I were king, they'd be beheaded, not bailed out.

Yeah, with our taxpayer money.

Reply to
Larry Jaques

'Dunno, Iggy. You may want to look into it further. If I was still covering materials I'd call some friends at _American Metal Market_ for an explanation, but I'm not, so all I can do is repeat what the consultants are saying.

But it parallels things that were happening in wheat markets a decade or so ago, where the financial controllers of the futures markets, and of grain storage, were indirectly setting the actual prices for red wheat. Golden Sacks apparently is using their control and inside knowledge to trade on their own behalf in the open market, so there are a lot of pieces to that puzzle.

We'll see if any other parts of the financial press pick up on it, and what they say.

Reply to
Ed Huntress

I would think the speculators are smart enough to see that kind scam comming. Something else going on here. What would happen if Goldman decided to get out of the moving/storage bussines? Panic selling? Goldman has bets that prices will drop like gold did? Many lawsuits would result, thats what forced bunky to file for BK.

Best Regards Tom.

Reply to
Howard Beal

Maybe Goldman wants new regulations ? It might make it easier to cover up how they scewed the speculators. Hell they might even pay for new regulations.

Best Regards Tom.

Reply to
Howard Beal

I'm not inclined to expect collusion and conspiracies in general, but when it comes to Golden Sacks and JP Morgan, I assume it's true.

Reply to
Ed Huntress

Nice to see that someone understands what is happening.

Actually as I see it the storage cost per month of storage is not increasing. It is just that the length of time that one can store aluminum is increased.

Dan

Reply to
dcaster

======================= Aluminum is only part of the story.

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[Enron lives!!!!!]

Commodity trade speculation/bubbles] appears to be in large part driven by the existence of "phantom." assets, analogous to bank credit and/or the ability of a physical asset to operationally exist in several locations at the same time through "hypothecation" of collateral. In too many cases there are NO PHYSICAL ASSETS, only IOUs or markers.

This is a far more important story than it appears, for example, speculation/market manipulation in food appears to have been a far more substantial factor in the "Arab Spring" and the collapse of a number of Mid-East governments than any sudden desire for freedom. Indeed, the continuing turmoil in Egypt can be almost entirely traced to unstable and rising food prices.

In short, the vaunted "free market" appears to be collapsing at the macro scale in everything from the cost of capital [LIBOR/QE] to energy, largely due to the actions of the major players such as "Golden Sacks," the mega banks, the hedge funds, with the collusion of the politicians and regulators.

FWIW G/S is now a bank.

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Reply to
F. George McDuffee

Well, Matt Yglesias is asking in that piece essentially what Iggy is asking.

This one does some explaining and concludes "Since 2010, the additional cost to aluminum users is about $3 billion annually, according to the Beer Institute, a Washington-based trade group that represents brewers." [talking about aluminum cans]

"Buyers have to pay premiums over the LME benchmark prices even with a glut of aluminum being produced. Premiums in the U.S. surged to a record 12 cents to 13 cents a pound in June, almost doubling from 6.5 cents in summer 2010, according to the most recent data available from Austin, Texas-based researcher Harbor Intelligence.

"Warehouses are creating logjams, said Chris Thorne, a Beer Institute spokesman.

?Restrictive and outdated warehousing rules are interfering with normal supply-and-demand dynamics, creating supply-chain bottlenecks, and preventing brewers and other aluminum users from getting aluminum in time and at fair market prices,? Thorne said.

[can't find]

Ouch.

This is pissing me off.

Reply to
Ed Huntress

Dan, how about I start plumbing repairs to your house, and keep hourly prices steady, but charge you 5 hours for toilet repair, instead of 1 hour. You would not be happy.

i
Reply to
Ignoramus18103

You do not have to call your friends, just think about that article, and you will arrive to the same conclusion. This is a cost charged to exchange participants and not to direct buyers.

i
Reply to
Ignoramus18103

I've read about four articles since. A couple seem to know what they're talking about. They say that the net result is higher prices to consumers, in the billions.

Take a look at my comments on the links that Unka' George posted.

There is no way, in a field like this, that I'd apply simple deductive logic to a situation I know little about, and decide that I've reached the correct conclusion, without hearing from multiple experts. That's how I work. Most things I write about for publication are things about which I'm not an expert. My task is to figure out where to get the information from experts.

I'm waiting for more. There will be more, because the Fed is getting involved in the general issue of banking firms warehousing commodities (revisiting regulations enacted in 2003), and the financial press, at least, will pick up on it.

Reply to
Ed Huntress

FYI

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Reply to
F. George McDuffee

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