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The summer storm that has shaken the London Metal Exchange, some of its members and warehousing firms had not blown itself out as August began.
Goldman Sachs issued its second statement in as many weeks, largely in response to the senate subcommittee testimony of MillerCoors’ Tim Weiner and the apparent misapprehensions of some members of the committee.
Market participants thought that the approach of ex-metal trader Gary Cohn, Goldman’s president and chief operating officer – “show sympathy, then nail them with a fact” – had paid dividends. It was horrible for consumers if they can’t get metal, he said – while adding that Goldman does not believe that to be the case.
Why?
Goldman had approached producers to check whether they had spot metal – guess what, they did – and consumers to see whether they had cancelled warrants in the queue – guess what, they did not.
Goldman made a promise… Had consumers wanted spot metal, and had they had material in the queue, Goldman would have swapped it around for them, Cohn said.
Cohn was attempting to reframe the debate, largely along the lines that the LME’s Martin Abbott has been presenting it since the queues first became an issue: that the stocks are the result of the market functioning as a buyer of last resort after the onset of the 2008 financial crisis.
Consumers such as Novelis’s Nick Madden responded by pointing out that Goldman’s offer was of no benefit.
…that it didn’t have to worry about Novelis has no metal in the queue because the waiting times have made it next-to-impossible for consumers to use the market as one of last resort, without paying what they see as unjustifiably high premiums.
Goldman’s move was a publicity stunt, in other words, Madden implied.
Novelis, which is a very large global producer of aluminium rolled products, wants the focus to remain on what it characterises as artificially high premiums, which cannot be hedged on exchanges.
(Banks point out they offer customers the chance hedge premiums if they are interested in doing so.)
The company wants the spotlight to remain on the reform of LME warehousing rules and the issue of warehouse ownership.
The debate looks set to outlast the summer, and to dominate discussion until LME week in October.
Of course, the aluminium market is used to long campaigns – and not just on issues around warehousing.
Dubai Aluminium marketing adviser Malcolm McHale, who is also president of the Federation of Aluminium Consumers in Europe, issued a timely reminder last week that duties on primary aluminium are a far greater issue for consumers in Europe than warehousing queues…
Alex Harrison aharrison@metalbulletin.com Twitter: @alexharrison_mb
[This article was amended on Aug 5, to point out that banks offer consumers the opportunity to hedge premiums]