Sure, Goldman Sachs Will Release Aluminum–But At What Price?

stuart burns metalminer headshotWe round out our Q&A with Stuart Burns (don’t forget to read Parts One and Two) on the validity of certain recent statements (in italics, below) that Goldman Sachs made about the ongoing LME aluminum warehouse issue.

MetalMiner: [Goldman indicated they’d be] “Providing aluminum for delivery in exchange for metal in the queue.”

Is that going to have any impact on anything?

Stuart Burns: From where and at what price? Current inflated MW premium prices? Or LME spot price?

MM: “We support enhanced disclosure at the LME, including with respect to who owns the warrants for metals and to designate by broad market participant category who is in the queue. We agree with Alcoa’s recent statements that enhanced disclosure will ensure that the LME continues to be the best source of price discovery for aluminum.”

What do you make of these comments?

SB: Disclosure will go some way to answering many of these questions. It may take some of the heat off the likes of Goldman if it shows they don’t hold any metal. But in itself, only a rise in interest rates or a collapse in the forward curve will put an end to the stock and finance model and a substantial drop in the premium. At the same time, that risks a flood of metal out of these deals over a short 18-24 month time frame, which would probably precipitate a collapse in the price. As many Western mills are barely turning a profit even with the high physical premiums, maybe we should be careful what we wish for. The only smelters left standing may be Middle Eastern, Russian and Chinese subsidized producers!

MM: Are there any other rule changes that you might suggest to alleviate the issue of high premiums?

SB: If load-out rates could be increased and an orderly end to the finance deals be engineered, then rates would come down. Suggestions on a post card, please!

Of course, by that last statement, Stuart means “Leave us a digital comment below!”

And don’t forget to read Parts One and Two.

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