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 In a filing on Friday, Duncan Galvanizing, one of the oldest
galvanizers in the United States, accused Goldman Sachs Group Inc
<GS.N>, JPMorgan Chase & Co <JPM.N>, the LME and metal warehouse
operators of conspiring since 2010 to manipulate the U.S. zinc
price.
The suit, registered in the Southern District of New York, is the
first to include allegations over the impact of warehousing on the
smaller, niche zinc market. Zinc is used to coat steel to protect
against corrosion.
The lawsuit names as defendants the mining and commodities trading
group Glencore Xstrata <GLEN.L> and its Pacorini Metals USA LLC
unit. Metro International Trade Services, the metal warehousing of
Goldman Sachs, is also named a defendant.
The lawsuit, which seeks class action status, echoes the allegations
made in 26 suits that have been consolidated into a class-action
suits over alleged price fixing of the aluminum market in the United
States.
JPMorgan and Glencore declined to comment on the lawsuit. A
spokesman for Goldman Sachs said it intended to "vigorously contest
the suit."
LME did not respond to a request for comment.
Frustration over long waiting times and inflated prices at metals
warehouses across the world has led to growing criticism of banks
that own commodity assets and trade raw materials and has captured
regulatory and public attention in the United States.
Complaints about escalating costs of aluminum by major users like
Coca Cola and MillersCoors which use the metal to make beverage cans
have caught public and political attention, but long queues and
inflated prices have been a big problem across other base metals,
market participants say.
The lawsuit claims the defendants used a variety of means to
restrain trade in zinc, including by manipulating LME rules to
ensure long queues for metals and shuttling zinc between warehouses
for no reason other than to "cause and exacerbate anticompetitive
effects."
Like aluminum, physical prices of zinc have soared in recent years
due to the queues, costing endusers billions of extra dollars each
year.
Premiums, paid on top of the benchmark LME zinc price for physical
delivery, have soared since 2010, Richard Brooks, who owns Duncan
Galvanizing, a small family-owned coating company based in
Massachusetts, said on Friday.
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He pays between 8 and 10 cents per lb for zinc premiums, up from 2-4
cents four years ago before the long wait times appeared.
"If we can stabilize the pricing, it can make the market competitive
for us again," said Brooks, whose company coats everything from
microchips with gold to bridges with zinc, by phone on Friday.
"I'm a small player and I enjoy being in business. It's not for the
reward. It's for what's right."
Most of the ire over zinc queues is centered on LME warehouses in
New Orleans, where 80 percent of the zinc in the exchange-registered
stockpile is stored. Pacorini operates most of the sheds in that
port city.
The lawsuit will likely stir the debate over how to solve the
years-long problem over long queues that have plagued the LME for
years.
The exchange, the world's biggest and oldest metal exchange, has
announced plans for a sweeping overhaul of its storage policy aimed
at easing logjams.
Facing political and regulatory pressure for its involvement in
physical commodity markets, Goldman Sachs this week put Metro up for
sale. JPMorgan is selling its physical commodities business,
including its warehousing unit Henry Bath.
The case is Duncan Galvanizing Corp v. The London Metal Exchange, et
al, U.S. District Court, Southern District of New York, No.
14-03728.
(Reporting by Andrew Longstreth and Josephine Mason; Editing by
Mohammad Zargham & Kim Coghill)
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