Purchasers Suffer When Aluminum Shuffles

We might like to think that basic metal materials markets have enough producers and buyers around the world that they are generally pretty efficient — prices aren’t distorted by the actions of a few producers or buyers.

Then along comes an article such as this one in the New York Times on Sunday, July 21, which describes how Goldman Sachs owns an aluminum warehousing operation that reportedly shuffles huge aluminum ingots from building to building, in part to boost rental costs that can be passed on to purchasers.

A Shuffle of Aluminum, But to Banks, Pure Gold

According to the report, the activity is all legal but aggravating to aluminum processors. Since the practice involves a significant share of aluminum on the market, it may also be incrementally increasing prices.

If that’s the case, it’s time for some kind of action to end a cozy scheme and clear the market. I’m no fan of over-regulation, so perhaps the solution might be in creating more competition. There might be a business opportunity here.

Scott Sturzl CPSM, C.P.M., Vice President – Certification, Diversity & CSR for the Institute for Supply Management(tm), cautions “Looking beyond Goldman Sachs many in the Western world continue to believe market completion is alive and well and not being impacted by others. The big picture of this subject makes it difficult to connect the dots in ways that are useful to supply professionals. Category managers and senior execs of all types needing raw materials to create/develop/manufacture product for sale would do well to discuss and plan potential business impacts in the medium and longer term.”

It’s critical to understand how market prices are set and plan accordingly. Perhaps knowledge can lead us to market price transparency.

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