Aluminum industry participants have probably followed multiple stories this past week (here’s one of ours, for example) discussing changes announced by Goldman Sachs with regard to the aluminum warehouse situation. MetalMiner also created an infographic describing how the process works. In light of these developments, we interviewed our very own Stuart Burns, himself a 30-year veteran of the aluminum market and former trader.
MetalMiner: Goldman Sachs made a number of recent announcements in response to a New York Times story and/or testimony given to a US Senate subcommittee. We have pulled out a number of salient statements (those below quoted in italics), such as this one:
“The warehouse operator does not own the metal stored in the warehouse. It merely stores metal on behalf of the ultimate owners. Those owners, not the warehouse operator, direct where the metal is sent, whether it’s to purchasers, warehouses or elsewhere.”
Is there any way for the public to see who is storing material at any given LME warehouse? For example, could we check to see how much Goldman Sachs-owned aluminum is stored in Metro warehouses?
Stuart Burns: We can’t see, unfortunately, but funny you should ask because Alcoa has called for the same thing.
Klaus Kleinfeld has asked the LME to disclose who owns the metal in US warehouses. Metro may not own any of the metal, but you can be sure Goldman Sachs, for example, owns metal on financing deals, either on their own behalf and/or on behalf of clients.
MM: “In general, without the warehouse system, producers would be less effective in managing their production and end users have less ability to manage their inventory. Without the ability to store metals, various market observers have stated that metal production would likely fall to such an extent that several smelters could shut down.”
Isn’t that precisely what the market needs? Don’t we have too much supply chasing too little demand anyway? What’s the tragedy in that?
SB: Yes, the market desperately needs rationalization. It’s harsh to those smelters that don’t enjoy state benefits of one sort or another if they are forced to close while others continue to operate, but why is that different from steel mills which have had to respond to market forces? There is no sponge to soak up spare steel production like there is the LME to soak up aluminum.