* Proposal will not cut costs of securing metal
* Novelis says move is 'no benefit' to industrial users
* Plan seen as placating regulators
* Lasting change seen coming from LME proposal
By Susan Thomas and Silvia Antonioli
LONDON, Aug 1 Goldman Sachs' olive branch
to beleaguered metals customers will do little to help bring
down the high cost of securing aluminium, but even critics
praised the proposal as a smart move to placate regulators and
Goldman responded to mounting political pressure and
regulatory scrutiny of its Metro International metals business
on Wednesday, by offering customers immediate access to aluminum
stored in its warehouses.
In a statement outlining the bank's proposals to cut waiting
times at all London Metal Exchange-registered warehouses,
Goldman said it would let major consumers swap aluminum held in
its warehouses for metal the bank has acquired, without the need
to pay a steep cash premium.
"With all this pressure from regulators it looks like
Goldman wants to come clean," Kamil Wlazly, a senior analyst at
Metal Bulletin Research, said.
"But aluminium queues were one of the reasons why aluminium
consumers have increasingly decided to shy away from procuring
metal through the LME warehousing network."
Novelis Inc, the world's biggest maker of
flat-rolled aluminum used to make beverage cans, received
Goldman's offer last week, but said it is of "no benefit" to the
company or other industrial users.
"We believe that other physical users of aluminum, like
Novelis, are unlikely to be in the queue because no
manufacturing business can tolerate a 19-month delay between
buying metal and achieving delivery," said Nick Madden, chief
supply chain officer, in an email to Reuters.
Madden, a longtime critic of the warehouse system, said he
stopped securing supplies from warehouses in 2011 after waiting
five months to get metal from Metro's Detroit facility for its
Oswego, New York plant. The wait time has since ballooned.
Customers and U.S. lawmakers have accused Goldman Sachs and
other warehouse owners of artificially inflating wait times and
lines to boost rents for warehouse owners and cause metal costs
to rise. One major customer estimated the delays have cost
consumers more than $3 billion.
Warehouse owners and outgoing LME CEO Martin Abbott have
said the complaints over long lines are unjustified, arguing
there is no shortage of metal.
Instead, they said the long lines have been created by
traders trying to move metal to rival warehouses that are
offering financial incentives in a bid to boost their own rental
Madden said Goldman's offer does not deal with the record
high physical prices being paid by steelmakers and carmakers and
other industrial customers, even though the market is in a
"We believe the focus should remain on the warehouse
ownership issue and the reform of LME warehousing rules," Madden
"I think this proposal is a very smart move on Goldman's
part," said one source with knowledge of the warehousing
business. "They have always claimed that the objections from the
consumers are spurious because they are not the ones that are
actually in the queues."
Goldman said its offer applies only to large metal consumers
like carmakers and soft drink producers, not to financial
traders like hedge funds, or rival merchant commodity traders
like Glencore Xstrata or Trafigura.
"If no-one takes them up on this, they turn around and say
there you are, told you! Nobody needs to swap warrants to take
physical delivery," the first source said. "To people not really
in the know, they will say that's great, so it's a clever piece
In testimony to the U.S. Senate banking committee last week,
brewer MillerCoors LLC complained aluminium users like
themselves were being forced to wait in some cases over 18
months to take physical delivery of metal, or pay the high
physical premium to get aluminium today.
Goldman President Gary Cohn told CNBC television on
Wednesday that no consumers had stepped forward to take up the
This is not surprising, consumers said. Most end users have
purchasing contracts with producers and do not have to queue for
metal, but they do end up paying the price of the metal being
tied up and unavailable.
"Packaging producers buy aluminium sheet so they don't take
aluminium from LME warehouses, but they still suffer the
consequences of the queues at warehouses propping up the
premium," Gino Schiona, director general of Italian aluminium
packaging association CiAl.
"The concentration of metal in warehouses and the rising
premiums smell of speculation."
The queues have caused the price premium on some metals,
like oversupplied aluminum and zinc, to surge, prompting
accusations that the banks and traders that own storage
facilities are artificially inflating prices and distorting
"In terms of premiums, there is no big change on the ground.
Maybe a very gradual reduction but nothing steep," the European
trader said. "If you want to buy aluminium you will still
struggle to find any cheap metal. I can't find anybody who has
drastically reduced their premium."
Under mounting pressure to ease the problem with wait times,
the Hong Kong Exchanges and Clearing Ltd owned LME
announced on July 1 sweeping reform of its warehousing policy,
its third attempt to placate angry users. If approved, those
changes will come into effect in April.
And it might just work.
The LME's warehousing committee, which includes Metro and
Glencore's Pacorini warehousing firm, held an extraordinary
meeting this week, and all but one of its members voted in
favour of the new deal, three sources with knowledge of the
"That is a big accomplishment," said one of the sources.