London metal exchange moves to curtail aluminum warehousing

By Joe Vladeck

Who knew the aluminum market was so bizarre and fascinating? For years global financial and commodities powerhouses have been engaged in "a merry-go-round of metal," stockpiling aluminum and shuffling the metal between warehouses with no real intention of actually, you know, selling it. 

The practice served several functions, ranging from understandable to opportunistic. During the financial crisis, when liquidity was tough to come by, parties looking to raise working-capital used unprocessed aluminum and other metals as collateral. In that respect, the metal trades helped grease the rails of the global financial system when it was struggling for momentum. More recently, finance firms such as Goldman Sachs discovered huge windfall profits in artificially extending the storage time before aluminum is turned into beer cans or foil. Goldman Sachs, for example, often shuttled aluminum from one Detroit-area warehouse to another for 16 months before selling it. 

This latter practice was unmasked by a fascinating New York Times expose in July. In response, the London Metal Exchange (LME), the world's most important metal marketplace, recently revised its aluminum policies: the allowable "wait time" for stored aluminum has been reduced to 50 days, and LME has instituted a series of incentives to keep the aluminum flowing, so to speak. 

Reuters and The Wall Street Journal have the story on the LME's new policies.