THIS IS A LITTLE SUSPICIOUS

Michael Johnson of the BBC's World Service has been looking into commodity prices and the show about copper indicates that we may all be getting screwed by the investment banks once again.  FT Alphaville has the important part of the transcript:

MR: The Steinweg group is authorised to hold LME-registered copper. Given how tight bank analysts said stocks were I was surprised to see so much of it. And after all it was only one of Steinweg’s many warehouses around the world. But then John Van Der Lek explained another statistical problem. Not all the copper in the warehouse would show up on the official LME stocks. Under warrant as they say in the jargon.

ST: We have two kinds of numbers in our warehouse. The warrant numbers which are given by the LME, and our own numbers for our own administration.

MR: In fact it turned out that only about 40% of the copper was on the LME’s official stocks, and therefore visible to the market. Strict discretion prevented John Van Der Lek from telling me who owned the off-market copper or how long it had been in the warehouse. But there were some clues.

The Steinweg group is one of the few remaining independent warehouses for copper supplies because traders and investment banks have bought the others:

MR: Steinweg is the last independent warehouse. Does it give them [the banks which own warehouses] an unfair advantage?

MR: John van der Lek told me he’s relieved that the Steinweg group is still independent, he says he’d like to avoid any suspicion of conflict of interest.

MR: “But what’s wrong with a bank owning a warehouse?”

ST: “I don’t know why they want to own warehouses. There must be a reason for that. But I don’t know why they do.”

MR: “Is it good business for a bank?”

ST: “Could be, but I don’t know, I don’t think so. I don’t have an idea what their feeling for taking over a warehouse.”

MR: “The danger is pretty obvious. That the bank has more information than other traders because it owns a warehouse?”


ST: “Yeah. That is to a danger for the traders. Maybe so we’re in a situation where people get more information out of the warehouses, but we are here independent and we would like to keep it that way. And we hope our customers appreciate that.”