July 20, 2013

Goldman Sachs’ Aluminum Hoard in Detroit

Goldman Sachs’ Aluminum hoard in Detroit.
1.5 million tons of aluminum stored at Goldman Sachs warehouses in Mt Clemens.

NYTimes on Goldman’s aluminum warehouses - 
The story of how this works begins in 27 industrial warehouses in the Detroit area where Goldman stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.

Goldman stores the metal on behalf of traders and charges them a fee for storing it (Related: Contango Financing for Aluminum ).

Does the aluminum get used by manufacturers?  Eventually, yes!  But, for a long time, it stays just in the warehouses and gets shuffled from warehouse to warehouse while Goldman earns fees for storing the metal.

The cost of all this warehousing – 
Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

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