Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Industrial wire manufacturers allege manipulation of supplies of zinc, (Jun 18, 2014)

By Linda O’Brien, J.D., LL.M.

Manufacturers of industrial wire products have filed a complaint in the federal district court in New York City, alleging that major domestic and foreign financial services firms engaged in a conspiracy to restrain supplies of zinc and to inflate the premiums associated with the purchase of zinc, in violation of federal antitrust laws (Oklahoma Steel and Wire Co., Inc. v. Glencore Xstrata, PLC, June 13, 2014).

The London Metal Exchange (LME) is a global futures and options exchange for trading industrial metals. Prices discovered on its trading platforms are used as the global benchmark. There are two sessions each trading day for each metal, and LME prices are derived from “open-outcry” trading sessions where “ring-dealing” members are entitled to trade. Among its various functions, the LME maintains a large network of warehouses for its traded commodities, including warehouses are located across the United States. Oklahoma Steel and Wire Co., Inc., Iowa Steel and Wire Co., and Southwestern Wire, Inc. are producers of galvanized steel and wire products that use zinc in the manufacture of their products.

According to the complaint, in 2010, financial investment firms JPMorgan, Goldman, Glencore, and Trafigura purchased leading metals warehouse operators and collectively acquired the majority of global metals warehouses authorized by the LME. The defendant firms conspired with LME to manipulate global warehouse supplies of zinc.

By controlling the flow of zinc into and out of LME warehouses, the defendants were able to control the premiums charged for zinc in the relevant market. The metals warehouses are a crucial bridge between the physical and financial markets and provide an ample motive to monopolize and restrain trade in zinc warehousing by creating artificial queues for zinc in LME warehouses. The defendants earned inflated warehousing rents and profited in their trading of financial instruments based on zinc prices, the complaint charged.

The complaint states that the restriction on the amount of zinc released from LME warehouses benefited the defendants by allowing them to charge storage fees over a longer period of time, thereby artificially driving up cumulative storage costs. The artificial storage costs influenced zinc premiums paid by industrial wire manufacturers as the premiums were intended to reflect the cost of storing and moving metal from LME warehouses. The defendants’ conspiracy to monopolize and restrain trade in zinc stored in LME warehouses directly caused anticompetitive prices in the markets for the sale of zinc globally.

Governmental and regulatory agencies in the United States and Europe have initiated investigations beginning in 2012 into ownership, conduct, and agreements regarding the warehousing of commodities in facilities monitored by the LME. In addition, the LME is undergoing a legal review of potential action to be taken in regulating the incentives that warehouse companies pay to attract the storage of metal in their facilities.

Economic analysis by experts shows that the backlog of zinc at LME warehouses is due to LME rules that allow warehouse operators to release much less metal per day that they take in, the wire manufacturers claimed. The lack of readily available metal has increased premiums – the amount paid over the LME cash price for physical metal. Analysts indicated that some zinc is likely shifting from one warehouse operator to another due to competition to secure lucrative rents and to maintain high physical premiums.

The plaintiffs assert claims for unreasonable restraint of trade, monopolization, and violations of Sections 1 and 2 of the Sherman Act. The action seeks declaratory and injunctive relief, restitution, damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:14-cv-04290-UA.

Attorneys: Hannah Ross (Bernstein Litowitz Berger & Grossman LLP), Joseph H. Meltzer (Kessler Topaz Meltzer & Check, LLP), Jason E. Roselius (Mattingly & Roselius, PLLC), and Bradley D. Brickell (Brickell & Associates, P.C.) for Oklahoma Steel and Wire Co., Inc., Iowa Steel and Wire Co., and Southwestern Wire, Inc.

Companies: Oklahoma Steel and Wire Co., Inc.; Iowa Steel and Wire Co.; Southwestern Wire, Inc.; Glencore Xstrata, PLC; Pacorini Metals AG; Trafigura BV; Impala UK Ltd.; The Goldman Sachs Group, Inc.; Metro International Trade Services LLC; JPMorgan Chase & Company, J.P.; Henry Bath & Son, Ltd.; London Metal Exchange Limited; Hong Kong Exchanges & Clearing, Ltd.

News: Antitrust NewYorkNews