New York Times: How Goldman Sachs uses Detroit warehouses to manipulate the aluminum market

David Muller | By David Muller |
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on July 22, 2013 at 1:39 PM, updated July 22, 2013 at 4:53 PM
aluminum-metro-international-trade-services.jpgMetro International Trade Services, a subsidiary of Goldman Sachs. 

DETROIT, MI - Every day, truck drivers shuffle around 1,500-pound bars of aluminum in a circuit of metro Detroit warehouses. Sometimes they do this dance several times a day.

The motive, according to a New York Times article called “A Shuffle of Aluminum, but to Banks, Pure Gold,” is to lengthen the storage time of the metal, adding millions of dollars to the profits of Wall Street banks such as Goldman Sachs by exploiting pricing regulations.

Read the full New York Times story here.

The Times' opening analogy is that of people opening a can of soda (pop), beer or juice: “And every time they do it, they pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars,” the article says.

Here’s a stunted breakdown of what the Times outlines:



Despite the apparent price manipulation, Goldman is not violating any laws. Of course, it helps that the industry regulator, the London Metal Exchange (LME), which oversees 719 warehouses throughout the world, has also been owned by members of banks such as Goldman, Barclays and Citigroup. Metro International’s own president was on the warehouse committee that helped draw up some of the industry’s regulations.


The immediate effect on the purchase of an aluminum can is a tenth of a cent, but when added up to overall aluminum usage it has cost American consumers more than $5 billion over the past three years.

The U.S. had previously drawn a line between banks and merchants to minimize risk and protect depositors, but that line was blurred with deregulation in the 1980s and 1990s.

Some investors and analysts say that banks’ involvement has helped make markets more efficient, but at times even the bank themselves have acknowledged that their actions have caused increased prices; in 2011, an internal Goldman memo said that investors’ speculation accounted for a third of the price of oil.

From the Times:


Copper may be next. Banks including Goldman, JPMorgan Chase and BlackRock have successfully lobbied the Securities and Exchange Commission to be allowed to buy up 80 percent of copper on the metal market. Goldman said in SEC filings that it plans to store most of that copper at the same warehouses where it stores aluminum, though a Goldman spokesman told the Times that it has since decided against the copper venture.

Regardless, the banks that do get involved in the copper market have some economists worried that they will drive up copper costs in the same way they pushed up aluminum prices, and the effects would ripple through the broader economy.