Lawsuits Accuse Goldman Sachs Of Aluminum Price Fixing and Stockpiling

It’s one of the tenants of a free and competitive market that stockpiling damages prices and monopolies are illegal. A new wave of lawsuits, however, have accused a major company of just that – and of doing so in a way that affects almost every American. Ever drunk from a can? The aluminum it’s made from may have cost you more than it should.

Goldman Sachs was able to artificially inflate the price of aluminum.

A proposed class action lawsuit has been filed against Goldman Sachs, alleging that the Wall Street investment bank manipulated aluminum prices by storing vast quantities of the metal in its warehouses located throughout the country. The recently filed class action alleges that through its anti-competitive warehousing scheme, Goldman Sachs was able to artificially inflate the price of aluminum in violation of federal antitrust laws. The lawsuit has kicked off renewed interest in antitrust suits, and it’s possible that several companies could face legal action.

In February of 2010, Goldman Sachs acquired Metro International Trade Services (Metro), a global warehouse operator that specializes in the storage of aluminum. The company stores aluminum in 29 industrial warehouses in Detroit - an important market for aluminum because it is home to the country’s automobile industry. Metro has additional warehouses in Chicago, IL, Mobile, AL, Toledo, OH, New Orleans, LA, St. Louis, MO, and Long Beach, CA.

Through ownership of these warehouses Goldman holds approximately 80% of the total aluminum stockpiles in the United States that are regulated by the London Metal Exchange (“LME”), which sets rules for aluminum warehouses and traders.

Since taking over Metro, Goldman Sachs has allegedly only allowed the minimum amount of aluminum to leave its warehouses that is allowable under the rules established by the LME. The antitrust lawsuit alleges that Metro could easily remove much more aluminum from its warehouses, easing supply bottlenecks and lowering premiums for aluminum in the process.

Since Goldman Sachs acquired Metro in 2010, the amount of aluminum stockpiled in warehouses has risen dramatically. Aluminum stockpiles in Detroit, for example, rose from 900,000 tons in 2010 to an all-time high of 1.49 million tons in 2012. Normally, this increase in supply would have put downward pressure on the premium paid for aluminum, as it would imply that more metal was available to the market. Goldman Sachs, however, allegedly offers its clients financial incentives to keep their aluminum in its warehouses, so much of the aluminum that could be shipped out remains sitting in Metro warehouses.

The class action also alleges that Goldman Sachs was able to circumvent rules that require aluminum warehouse to release a certain amount of aluminum each day simply by moving aluminum from one Metro warehouse to another. As reported by the New York Times, the practice of moving aluminum from one warehouse to another was referred to as “a merry-go-round of metal” by one former Metro forklift operator, and may land the company in hot water if a lawsuit can prove their actions were deliberate attempts to hold prices and the industry to ransom.