Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Printing equipment company joins suits alleging manipulation of aluminum supply, (Nov 7, 2013)

By Tobias J. Gillett, J.D., LL.M.

Printing equipment and supplies manufacturer Agfa Corp. has filed a complaint in the federal district court in Detroit, alleging that certain banking and trading companies conspired with the London Metal Exchange (LME) to restrict the supply of aluminum, thus inflating prices (Agfa Corp. v. The Goldman Sachs Group, Inc., filed November 6, 2013). Agfa’s complaint joins other complaints challenging the same alleged conduct, including another action filed in Detroit and complaints filed in New Orleans and Tallahassee.

According to Agfa’s complaint, contracts for delivery of aluminum incorporate prices based on the “LME Official Price,” defined as the “last bid and offer price quoted” during the LME’s second Ring session,” as well as a Midwest Premium and other fees and premiums. Aluminum is stored in LME-certified warehouses, of which defendants Metro International Trade Services LLC, Henry Bath LLC, and Pacorini Metals USA LLC own and operate more than 75 percent. LME delivery warrants are issued when aluminum is checked into a warehouse for storage and cancelled when the aluminum is earmarked for delivery from the warehouse. The complaint alleges that the amount of aluminum stored in such warehouses worldwide “soared” between 2008 and the present, from about 1.1 million tonnes in July 2008 to about 5.5 million tonnes in April 2013, and in U.S. warehouses rose from 209,000 tonnes in 2005 to 2.3 million tonnes in 2012.

Agfa alleges that the 2008 financial crisis led to a sharp decline in demand for aluminum, resulting in increased inventories of the metal being stored in LME warehouses. In 2010, Goldman Sachs Group, Inc. acquired Metro, JP Morgan Chase & Co. acquired Henry Bath, and Glencore Xstrata, PLC acquired Pacorini. The introduction of financial players into the market allegedly transformed the market into “a de facto speculators’ market—one dominated by traders seeking arbitrage returns rather than those who actually consume aluminum.” The financial companies “manipulated the supply of aluminum by purchasing inventories of aluminum, placing them under warrant at LME warehouses, followed by dubious transfers to, in many cases, the warehouse defendants themselves or their affiliates, canceling the warrants based on such ‘transfers,’ and then reinstating the warrants once the aluminum has reached the next warehouse.”

The warehouse defendants also allegedly paid aluminum producers and traders to deposit their aluminum in their warehouses and to continue to store their inventories there. The warehouses also maintained excessively slow load-out rates, barely above the LME’s required minimum rates, causing “lengthy and persistent queues of over one year” to develop for delivery of aluminum. The Midwest Premium rose from 3 percent of LME Cash Price in 2008 to 14% of the LME Official Price at present, “when global surpluses of aluminum have never been higher.”

The LME—which was until recently wholly owned and controlled by its members, including Goldman Sachs, JPMorgan, and Glencore—set load-out rules that “acted as a de facto uniform or maximum load-out rate,” functioned as a restriction on aluminum output, and constituted an agreement among the defendants to restrain trade in aluminum. Moreover, the warehouse defendants allegedly evaded even the LME’s minimal load-out rules by simply shifting aluminum from one warehouse to another instead of delivering it to customers.

The complaint notes that aluminum purchasers have complained about the defendants’ practices, and that the Commodity Futures Trading Commission and the Department of Justice have commenced investigations of price manipulation and collusion in the metals warehousing industry.

The complaint asserts claims for violations of Section 1 of the Sherman Act and seeks an order declaring that the defendants’ conduct violated the law, damages and treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 2:13-cv-14617-PDB-RSW.

Attorneys: Joseph E. Viviano (Viviano, Pagano & Howlett PLLC) for Agfa Corp.

Companies: Agfa Corp.; Goldman Sachs Group, Inc.; Metro International Trade Services LLC; JP Morgan Chase & Co.; Henry Bath LLC; Glencore Xstrata, PLC; Pacorini Metals USA LLC; London Metal Exchange, Ltd.

News: Antitrust MichiganNews