Exclusive: CFTC subpoenas metals warehousing firm as inquiry heats up

Mon Aug 12, 2013 6:08am EDT
 
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By Josephine Mason

LONDON (Reuters) - The U.S. commodities market regulator has subpoenaed a metals warehousing firm, seeking all of its documents and communications related to the London Metal Exchange since January 2010, as an inquiry into complaints about inflated metals prices gathers steam.

The U.S. Commodity Futures Trading Commission (CFTC) sent the subpoena last week, a source with direct knowledge of the matter said, after a letter from the regulator last month ordered the warehouse firm to preserve emails, documents and instant messages from the past three years.

The subpoena is the latest sign that the CFTC is stepping up its inquiry as it looks into allegations by users of metals, such as Coca-Cola Co, that warehousing firms have made it more expensive for them to buy metal by restricting the flow of metal out of warehouses.

It isn't clear if more than one firm has received a subpoena or whether there is going to be a formal investigation into the metals warehousing industry.

The industry used to be primarily run by traditional warehouse firms such as Netherlands-based C.Steinweg and Singapore-headquartered CWT Commodities but in recent years it has been dominated by banks such as Goldman Sachs and JPMorgan Chase & Co, as well as large commodities traders like Glencore Xstrata Plc and Trafigura AG, all of which have bought metals warehouse businesses in the last three years.

Goldman Sachs, JPMorgan Chase & Co, Glencore Xstrata, and Trafigura declined to comment.

CFTC spokesman Steve Adamske also declined to comment. While the CFTC opens dozens of investigations each year, only a handful ever result in action and some are never made public. It almost never discusses open inquiries.

The warehouses and the London Metal Exchange (LME), which works with and monitors a vast network of warehouses, have said big stockpiles and high physical prices are the result of low interest rates and a market structure known as contango that make it profitable to sell metal forward and store it for months or years at a time.   Continued...

 
Traders and clerks react on the floor of the London Metal Exchange in the City of London February 14, 2012. REUTERS/Luke MacGregor