The brewer is calling on US legislators and regulators to strengthen oversight of LME members – ‘bank holding companies’, the largest owned by Goldman Sachs controls 29/37 Detroit warehouses, and stop what it claims is a deliberate supply bottleneck that artificially inflates aluminum prices.
Asked about MillerCoors concerns, LME head of media relations, Miriam Webster, told BeverageDaily.com this morning: "We appreciate the market’s concerns on the current length of warehouse queues and have already brought in a series of measures to address the situation.
“The proposal we are currently consulting on could help to alleviate the issue and we encourage market users to contact us with their views,” she added.
Tim Weiner, global risk manager, commodities/metals, MillerCoors will tell the US Senate Committee on Banking, Financial Institutions and Consumer Protections today that in 2013 his firm will package 60% of its 60m+ barrels of beer in aluminum cans and bottles.
Coke, Dr Pepper, Rexam, Ball share concerns...
Describing aluminum as MillerCoors’ largest single price risk in testimony ahead of today’s hearing, Weiner will add that both the Chicago brewer and industry peers have grave concerns about warehousing practices conducted by LME members.
(Weiner said The Coca-Cola Company, Novelis, Ball Corporation, Rexam, Dr Pepper Snapple Group and other large companies also shared MillerCoors’ concerns.)
“Aluminum prices in general and for can sheet in particular have remained inflated relative to the massive oversupply and record production. What’s supposed to happen under these economic conditions? When supplies rise while demand is flat to down, prices should fall,” Weiner says.
But instead the aluminum bought by MillerCoors and other industry players was being stockpiled in warehouses owned by US bank holding companies and LME members, he adds, with the Goldman Sachs subsidiary controlling around 25% of LME-stored aluminum globally via Detroit warehouses.
These companies deliberately slow down the ‘load out’ of aluminum from warehouses to ensure they receive increased rent for extended periods, Weiner claims.
“Aluminum users like MillerCoors are being forced to wait in some cases over 18 months to take physical delivery due to the LME warehouse practices or pay the high physical premium to get aluminum today,” he says.
Weiner says this does not happen with any other commodities MillerCoors bought – corn, natural gas, etc. – that were delivered promptly, while prices were not inflated.
'The current system does not work'
Tens of thousands of metric tons per day of aluminum was supplied to warehouses, but no more than 3,000tons/day came out of LME warehouses in Detroit, Weiner said, with minimum release requirements treated as maximums by members.
“US manufacturers want to take possession of their metal, but cannot because the LME rules allow the warehouses to collect rent for every day, month and year that the aluminum sits in these LME warehouses. The current system does not work,” Weiner says.
He adds: “It has cost MillerCoors tens of millions of dollars in excess premiums over the last several years with no end in sight. My company and others estimate that last year alone, the LME warehouse rules have imposed an additional $3bn expense on companies that purchase aluminum.
The US Commodity Futures Trading Commission – which MillerCoors has urged to regulate LME practices – said last week that it was considering a possible investigation into warehousing, while the Federal Reserve is reportedly reviewing banks’ activities in physical markets.
Nick Madden, Novelis SVP and chief supply officer, wrote in a blog post yesterday that industry was faced with the highest spot premiums for aluminum in history at a time when stocks are at an all-time high.
“For me, the warehousing issue is the last straw. It inflates premiums and creates unacceptable supply chain risks,” he writes.