Special report: Goldman's new money machine: warehouses

By Pratima Desai, Clare Baldwin, Susan Thomas and Melanie Burton | Reuters 



LONDON/DETROIT (Reuters) - In a rundown patch of Detroit, enclosed by a cyclone fence and barbed wire, stands an unremarkable warehouse that investment bank Goldman Sachs has transformed into a money-making machine.
The derelict neighborhood off Michigan Avenue is a sharp contrast to Goldman's bustling skyscraper headquarters near Wall Street, but the two operations share one important element: management by the bank's savvy financial professionals.
A string of warehouses in Detroit, most of them operated by Goldman, has stockpiled more than a million tonnes of the industrial metal aluminum, about a quarter of global reported inventories.
Simply storing all that metal generates tens of millions of dollars in rental revenues for Goldman every year.
There's just one problem: only a trickle of the aluminum is leaving the depots, creating a supply pinch for manufacturers of everything from soft drink cans to aircraft.
The resulting spike in prices has sparked a clash between companies forced to pay more for their aluminum and wait months for it to be delivered, Goldman, which is keen to keep its cash machines humming and the London Metal Exchange (LME), the world's benchmark industrial metals market, which critics accuse of lax oversight.
Analysts question why London's metals market allows big financial players like Goldman to own the warehouses which store huge quantities of metal even as they trade the commodity.
Robin Bhar, a veteran metals analyst at Credit Agricole in London says the conflict of interest is so acute he wants U.S. and European anti-trust regulators to weigh in.
"I think it makes a mockery of the market. It's a shame," Bhar said. "This is an anti-competitive situation. It puts (some) companies at an advantage, and clearly the rest of the market at a disadvantage. It's a real, genuine concern. And I think the regulators have to look at it."
Goldman said its warehouse subsidiary Metro International Trade Services has done nothing illegal, and abides by the LME's warehousing rules. "Producers have chosen to store metal in Detroit with Metro," a Goldman spokeswoman said. "We follow the LME requirements in terms of storing and releasing metals from our warehouses."
The London Metal Exchange defends its rules. "There is a perception that consumers have not been able to get to their metal when the reality is that it is big banks, financing companies and warehouses that are not able to get to their huge tonnages of metal fast enough," said LME business development manager Chris Evans.
For more follow the link:
http://news.yahoo.com/special-report-goldmans-money-machine-warehouses-090810768.html


WHY THE BDI IS A HEAD-FAKE
from Shaza
I keep saying that you can not rely on the Baltic Dry Index to assess the commodity climate in China. I have said that major Commodity countries and companies  own their own shipping fleets. 

This article backs up my reasoning of why the BDI fell when the commodity boom roared on. 

IT had more than a few defaltionists scuppered. But ask yourself...If you are BHP, Rio TINTO or Vale, would you really rely on ship hire! NOPE....I think not! 


http://www.bloomberg.com/news/2011-07-27/china-s-shipping-companies-lobby-to-foil-vale-s-iron-ore-fleet.html


Breadth is running out of steam

There is a bearish divergence on the NAZ…not volume per se, but number of stocks holding up the market is falling and diverging. See Chart: