Opinion pieces are the views of the author: they do not represent the views of FastMarkets
My four-year-old son has a long list of possible career options. Recent favourites include: astronaut, scientist and architect.
But never once has he looked me in the eyes and said, “Daddy, I would really like to be a metals journalist one day.
And I certainly can’t blame him. The world that we toil in is normally quite unglamorous. Few things clear out a cocktail party faster than an impromptu discussion of the copper contango.
And while my friends, after a few drinks, might find it to funny to attempt an exaggerated British pronunciation of “aluminium”, any discussion of my job typically begins and ends there.
Yet, over the past couple weeks, the spotlight has brightened. The brouhaha over bank ownership of warehouses and other commodity assets has garnered front-page coverage in newspapers and top-of-the-hour placement on cable television. As strange as this still seems to me, this is a national news story.
You could even make a pretty lucid argument that we have moved past a metaphorical tipping point in recent days.
Author Malcolm Gladwell defines a tipping point as “the moment of critical mass, the threshold, the boiling point” when an idea or trend “spreads like wildfire”.
But is there one specific moment that we can look to and say: this is the point of no return, where the public pressure built to a level that legislators and regulatory agencies have no other option but to act on metal warehousing.
It could have been when the Federal Reserve announced that it will review its decision that allowed banks to move into the physical commodity business.
Or perhaps it was when the CFTC demanded some banks and selected traders to preserve any communications related to incentives or other related delivery procedures.
Or maybe when the US Senate’s banking committee held a hearing, questioning whether commercial banks should even be allowed to own oil pipelines, power plants and metals warehouses.
But I would argue, taken on their own, each of these still is not all that interesting to normal folk. Only inside-the-beltway policy wonks, the companies directly affected and the trade press really cared. Nevertheless, each of these events pushed the debate one step closer to that edge.
Even the scathing New York Times article published on July 20 alleging that Goldman Sachs was running a scheme to inflate metal prices artificially through warehouse ownership was not that seminal moment. Sure, that story was widely disseminated, and even directly rebutted by Goldman, but it wasn’t entirely assimilated into the collective consciousness.
But, as Gladwell’s book notes, there is paradoxical element to every epidemic. To create one contagious movement, there must also be small movements first. The New York Times article, the Senate committee hearing and even the behind-the-scenes actions by the Fed and the CFTC all built up inertia.
For my money, the trajectory materially changed last Thursday night when The Daily Show, America’s preeminent liberal-leaning news satire programme, led with an aptly titled lampoon titled “John Oliver’s Arcane Details of Boron-Group Metals Pricing Update.”
“Now, wait, wait, wait – don’t change the channel, I promise this story is worth listening to,” Oliver, the show’s stand-in host, implored his audience as he subsequently asserted that Goldman bets on the future price of aluminium while “simultaneously goosing the future price of aluminium by creating a supply bottleneck in its aluminium warehouse.”
“In the stock market, that’s called insider trading. In the commodities market that’s known simply as Thursday,” Oliver deadpanned.
Now the purpose of this commentary isn’t to discuss or vindicate the merits of Oliver’s ridicule but to simply point out he found the topic important and interesting enough to devote 10 minutes of air-time to it. The next morning, friends and family filled my e-mail box with links to The Daily Show segment. The same people who previously saw my job as inconsequential drudgery were now genuinely interested.
In my estimation, that’s when the metals business entered the American zeitgeist.
And this brings me to my ultimate point. The agencies that regulate the metal trade – the LME, Congress, the CFTC and the Fed – can no longer afford to sit on their hands. The political pressure and public awareness is just too great. Laws are coming.
And the large banks and trading houses clearly see the writing on the wall. JPMorgan Chase & Co said on Friday that it will pursue strategic alternatives for its commodities business, including its physical metal trading and warehousing operations.
Goldman Sachs has already scaled down its physical metal trading desk amid lower profits and increased reputational risks. The bank is also rumoured to be mulling the sale of its Metro International warehousing operations; however, finding a buyer that is willing to pay top dollar could be difficult given all of the swirling uncertainty.
The bottom line is that average, everyday people are now aware that metal is piling up in Detroit warehouses and some of them believe that this will make their Budweiser more expensive. For the first time, maybe ever, there’s a portion of the general public that is actually interested in our little niche.
Maybe I even can show this story one day to my son and it will inspire him to follow in his father’s journalistic footsteps…
Eh, who am I kidding – I’m sure he would still rather be a racecar driver.