Usual Suspects Now Heavily Involved with Commodity Warehousing
July 6th, 2011This is beyond ridiculous. It gives a whole new meaning to front running.
“There is no evidence to suggest they share information…”
Oh sure.
My guess is that this is the primary reason that these firms have gotten involved with commodity warehousing. If the left hand isn’t sharing information with the right hand, with hundreds of millions of dollars in potential trading profits hanging in the balance, I’m Santa Claus.
Via: Wall Street Journal:
About 600 miles from Wall Street, Goldman Sachs Group Inc. employees are busy doing deals.
But instead of a sleek office tower, they work in a rundown warehouse deep in an industrial section of Detroit. And rather than trading in stocks or bonds, they move metal—lots of metal.
Goldman’s warehouse on the banks of the Detroit River is one of more than 100 storage facilities controlled by the giant securities firm around the world. The warehouses are part of Wall Street’s effort to forge a new frontier in the commodities markets: warehousing metal.
In the past 18 months, Goldman, J.P. Morgan Chase & Co. and trading firms Glencore International PLC and Trafigura Beheer BV have snapped up warehouse operators, all of them accredited to house metal traded through the London Metal Exchange, or LME. The buying binge means the four firms now are landlords to about two-thirds of the LME’s entire metal stocks, from aluminum to copper to zinc.
LME metal stocks represent a small portion of the global supply. For example, LME’s total aluminum stocks are about 4.5 million tons, or about 10% of the world’s annual supply.
For Wall Street, warehouses are a way to earn extra income, especially as core businesses like trading are suffering. The facilities represent a relatively small but profitable way to bet on commodities markets without actually trading, the firms said.
But the growing muscle of securities firms in the metal-storage business is riling users and traders, who say the firms have both a bird’s-eye view of supply and demand and the ability to control what goes in and out of their warehouses. These traders worry the firms could exploit their knowledge. The new owners say they keep their trading arms and warehouse operations separate, and there is no evidence to suggest they share information.
Related: They Made a Killing: The Use of Knowledge of Covert Operations in the Stock Market
Research Credit: MS
