Subpoenas issued over metals warehousing

The US commodities watchdog has subpoenaed companies including Goldman Sachs, JPMorgan Chase and Glencore as it ramps up its probe into the metals warehousing industry.

The subpoenas come amid a barrage of criticism in the US of banks' activities in commodity markets. In particular, Goldman Sachs and JPMorgan have come under fire for their ownership of metals warehouses after a Senate hearing last month where MillerCoors, the brewer, suggested that its costs had been inflated by long queues to take delivery of aluminium from London Metal Exchange warehouses.

Ownership of the LME warehouse network is concentrated among a handful of companies, including Glencore and Trafigura, the commodities trading houses; Goldman Sachs and JPMorgan, the Wall Street banks; and the independent C Steinweg of the Netherlands.

Since the financial crisis, warehouses have accumulated towering stocks of industrial metals. But the quantity of metal that warehouses must deliver each day is limited by LME rules. Bottlenecks have created delivery delays at some warehouses of a year or more.

These queues have helped to drive up physical premiums - the cost of metal over and above the LME benchmark - to record levels, creating a disconnect between the LME price and the physical market that has angered consumers from Coca-Cola to General Motors.

Goldman, JPMorgan and Glencore have received subpoenas from the Commodity Futures Trading Commission in recent days, according to people familiar with the matter. Previously the regulator sent "do not destroy" letters to metal warehouse owners directing them to retain documents.

The CFTC requested the companies to send by the end of next week every document, communication, voice recording, correspondence and email related to the LME since January 2010, according to Reuters, which first reported the subpoenas but did not name any company which had received one.

The companies and the CFTC declined to comment.

However, in response to a number of recent lawsuits alleging it artificially inflated aluminium prices Goldman has denied wrongdoing and pointed out that aluminium prices have fallen in recent years. JPMorgan has noted that there are no queues at its warehouses.

The investigation comes at a delicate time for the US banks, as the Federal Reserve is due to rule on whether they should be allowed to continue owning physical commodity assets.

Goldman has sought to defuse the tension surrounding its warehousing business by offering to provide immediate delivery of aluminium to any consumer waiting in a queue; JPMorgan has announced plans to exit physical commodities trading altogether.

Additional reporting by Kara Scannell and Gregory Meyer

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