* Ebullio can not afford inflated costs of buying metals
* Move follows US probe into bank, trade house metal firms
By Maytaal Angel and Eric Onstad
LONDON, Sept 2 Hedge fund Ebullio Capital
Management says it has exited physical metals trading after
struggling to compete in a market dominated by big banks and
trade houses, which are facing U.S. regulatory scrutiny of their
A drought in financing for metals trading since the global
financial crisis has also slashed profits, Lars Steffensen,
executive managing partner of British-based Ebullio, told
"It's a market that's been sown up by banks and trade
houses, and others can't operate. That's ok, that's business,
but we can choose not to be in that business," said Steffensen.
The Ebullio group, which has about $250 million in assets,
was planning to wind down its physical metals trading fund when
a dispute with commodity trader Noble Group Ltd
resulted in the liquidation of the fund, Steffensen said.
Noble was not immediately available for comment.
The fund, which used to be Ebullio's flagship, could
previously earn an annual 80 percent return on a typical copper
deal, but that margin is now 1-2 percent, said Steffensen.
"Today because of low interest rates and ownership of
warehouses by banks and trade houses, it's become impossible to
obtain metal in the spot market outside of warehouses - or you
have to pay very high premiums, so it's prohibitive."
Goldman Sachs, JP Morgan and Glencore-Xstrata
are fending off a barrage of U.S. lawsuits accusing
their warehousing subsidiaries of hoarding metal and
artificially inflating prices.
The matter has also been put before the U.S. Senate, while
both the Commodity Futures Trading Commission and the U.S.
Department of Justice have begun preliminary probes into their
metals warehousing business.
The unprecedented scrutiny follows years of complaints by
aluminium consumers about inflated prices and logjams at
warehouses resulting in lengthy queues to obtain metal.
Steffensen said his 80 percent profit on copper trading was
based on having a bank financing the deal and Ebullio putting
up 10 percent in collateral.
But without bank finance, Ebullio would have to finance the
entire transaction, slashing the profit margin to 8 percent. The
warehouse queues and resulting high premiums have further shrunk
margins down to 1-2 percent a year, he said.
Ebullio has had success in shifting to trading commodity
futures - its new flagship Far East Commodity Fund jumped 55.05
percent last year and gained 16.46 percent in August.