Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Goldman Sachs, JPMorgan charged in aluminum price fixing suit, (Oct 22, 2015)

By Linda O’Brien, J.D., LL.M.

Commodities trading firms Goldman Sachs and JPMorgan conspired to manipulate the regional premiums applicable to the spot price of aluminum by restricting the supply of aluminum in key London Metal Exchange (LME) certified warehouse locations, according to a complaint filed in the federal district court in New York City (Fujifilm Manufacturing U.S.A., Inc. v. Goldman Sachs & Co., October 21, 2015).

Goldman Sachs & Co., a subsidiary of financial services company Goldman Sachs Group, and JPMorgan Securities, a subsidiary of investment bank JPMorgan Chase, trade commodities, such as aluminum and other base metals, as principals and for clients. Metro International Trade Services and Henry Bath LLC own and operate numerous LME-certified warehouses in the United States that store aluminum, among other metals. Glencore Ltd. is a U.K. trading and mining company, and through its subsidiary Pacorini Metals, owns and operates LME-certified warehouses in the United States.

Fujifilm manufactures lithographic printing plates for the newspaper, commercial printing, and graphics communications industries.

The complaint states that the spot metal price for physically-delivered aluminum has two components: the LME cash price and a regional premium. The LME cash prices is determined daily by open outcry by buyers and sellers using standardized LME contracts, and the LME publishes the daily prices that are used globally for price negotiations and contracts. The regional premium reflects the state of supply and demand as well as delivery costs to end users. The benchmark regional premium in the United States is the Platts Midwest Premium.

The LME certifies a global network of metals warehouses, with about 200 warehouses located in the United States. Such warehouses are a critical part of the supply chain for aluminum because only in such warehouses can LME warrants be issued (aluminum has been checked for storage) and cancelled (aluminum has earmarked for delivery). Metro, Henry Bath, and Pacorini collectively own and operate more than 80 percent of the LME-certified warehouses in the United States and throughout the world, the complaint states.

In 2010, commodities trading firms began entering the aluminum warehousing business—Goldman Sachs acquired Metro and JPMorgan acquired Henry Bath, according to the complaint. This entry caused significant change in the behavior of the warehouses and nature of the physical market for aluminum. First, the defendants offered substantial incentives to store aluminum in their warehouses in order to concentrate stock in key locations. Second, the defendants agreed not to compete against each other in their warehousing operations and allocated key warehousing cities among themselves. Third, the defendants strategically transferred aluminum stocks among their warehouses to create excessive warehouse load-out queues.

The complaint also alleges that the diversion of aluminum from actual aluminum users caused an artificial shortage and resulted in higher Midwest Premiums paid by purchasers. The defendant traders profited from their manipulation of spot prices and regional premiums, since they did not pay the regional premium to acquire aluminum, sell aluminum without a queue, and earn higher rents for the metal stored in their warehouses. Fujifilm purchases large quantities of aluminum to produce lithographic printing plates. In the absence of the defendants’ conduct, LME warehouses would have competed to offer efficient storage services and not hoarded large quantities of aluminum and avoided the artificial shortfall of aluminum.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act. The action seeks declaratory relief, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-08307.

Attorneys: Walter W. Noss (Scott+Scott, Attorneys at Law, LLP), Derek Y. Brandt (Brandt Law LLC), Todd M. Schneider and Garrett W. Wotkyns (Schneider Wallace Cottrell Konecky Wotkyns LLP), and Allan Steyer (Steyer Lowenthral Boodrookas Alvarez & Smith LLP) for Fujifilm Manufacturing U.S.A., Inc.

Companies: Fujifilm Manufacturing U.S.A., Inc.; Goldman Sachs & Co.; Metro International Trade Services LLC; JPMorgan Securities plc; Henry Bath LLC: Glencore Ltd.

News: Antitrust NewYorkNews