EU’s Commission’s Enterprise and Industry has begun its inquiry into the big bank commodity trading houses who also warehouse the metal they trade but if the results of this inquiry is passed on to the European Commission’s Competition it would signal that big bank trading houses like Goldman will be examined as cartels, price-fixers and monopolists.
A bigger worry for producers and for LME warehouse owners such as banks and trading houses – who profit from metals backlogs – is the possibility that the inquiry is passed on to the European Commission’s Competition directorate.
The directorate looks at cartels, price-fixing, market-sharing and monopoly behaviour. It has investigative powers, and can impose fines of as much as 10 percent of global revenues on companies found in breach of EU competition law.
“I’d expect the competition authorities to be looking at this as the subject has been raised with them,” says McHale, president of the Federation of Aluminium Consumers in Europe (FACE).
The current inquiry has no legal, regulatory or legislative authority but can only pass its recommendation. Notable is that the inquiry was launched after metals users complained that the wait to get physical metal from warehouses is over a year.
Big bank trading houses like Goldman, Glencore, Trafigura and JPMorgan, own well over half of the metals warehousing supply and let out only a small amount of metal out of them causing long wait time for the end user who has to pay rental fees to these warehouses for waiting.
As a result, there are huge inventories of metals like aluminum and zinc but prices for them keep going higher because ever more metal is being tied up in the warehouses.
“For a trader or banker to own a warehouse for logistics purposes is fine, but for them to own an LME approved warehouse is not the same thing. It’s an interference in a free market,” said Anthony Lipmann, managing director of minor metals trader Lipmann Walton & Co.