Goldman Sachs Hoarding Aluminum: Why?

Goldman Sachs Hoarding Aluminum: Why?

Jul 31, 2011

It was reported Friday by Reuters that Goldman Sachs is stockpiling aluminum. No surprise at all that buyers can’t seem to get it and the price is going up.

Goldman Goldman Sachs Hoarding Aluminum: Why?

According to Reuters, Goldman Sachs owns several aluminum storage warehouses. In fact, Goldman is hoarding more than a million tonnes of the stuff. Goldman’s warehoused industrial metal aluminum accounts for roughly a quarter of the estimated global inventories.

Goldman’s warehouse subsidiary is called Metro International Trade Services.

What certainly appears to be the unethical part of this story (aside from Goldman Sachs being part of it, generally) is that like many investors, Goldman trades aluminum commodities. Should a bank that trades aluminum commodities own one quarter of the warehouses?

And hoarding is the correct adjective here because Reuters is reporting that less aluminum is leaving the storehouses than coming in, even though manufacturers who use aluminum need it. (This has to do with London Metal Exchange’s rules that only a certain amount of metal has to be delivered per day based on the city.) If the aluminum sits in the storehouses, then Goldman makes more money off of the rent paid by the aluminum producers to store it.

The Reuters article notes that aluminum costs “$20 to $40 a tonne higher because of the backlog at the Detroit warehouses.”

Either way—whether it’s stored or sold at a higher price—Goldman Sachs makes money. And, of course, higher prices for manufacturers requiring the aluminum are then passed on to the consumer by way of higher product prices.

A bank shouldn’t have this much power over commodities (See: Goldman Sachs’ involvement in oil commodities trading and oil price spikes.) But, this is the sort of devious behavior at which Goldman Sachs excels. And our government isn’t going to do a thing about it more than likely.

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