What’s Behind the Metals Warehouse Debate?

Current bottlenecks in aluminum shipments are the result of LME rules governing metals warehouses; they have not been conjured up by the banks to facilitate manipulation.

The role of investment banks in the physical commodity markets has stirred a major regulatory controversy in recent months that has prematurely put misdirected-blame on the banks. The debate has centered around extensive shipment delays of aluminum from a select group of LME (London Metals Exchange)-approved warehouses. The buyers of this aluminum (e.g., brewers, soda companies, GM) have accused the big investment banks of leveraging their ownership of physical warehouses to delay shipments (by as much as 200 days) to increase prices. As a result, the US Congress even held a hearing on the subject. However, deeper analysis shows that the allegations that have been brought against the banks are misplaced, and the rhetoric that has been generated is contrary…


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