Goldman's aluminium offer may soothe but leave costs high

Goldman Sachs' olive branch to beleaguered metals customers will do little to help bring down the high cost of securing aluminium, but even critics praised the proposal as a smart move to placate regulators and silence complaints.

Goldman responded to mounting political pressure and regulatory scrutiny of its Metro International metals business on Wednesday, by offering customers immediate access to aluminum stored in its warehouses.

In a statement outlining the bank's proposals to cut waiting times at all London Metal Exchange-registered warehouses, Goldman said it would let major consumers swap aluminum held in its warehouses for metal the bank has acquired, without the need to pay a steep cash premium.

Novelis Inc, the world's biggest maker of flat-rolled aluminum used to make beverage cans, received Goldman's offer last week, but said it is of "no benefit" to the company or other industrial users.

"We believe that other physical users of aluminum, like Novelis, are unlikely to be in the queue because no manufacturing business can tolerate a 19-month delay between buying metal and achieving delivery," said Nick Madden, chief supply chain officer, in an email to Reuters.

Warehouse owners and outgoing LME CEO Martin Abbott have said the complaints over long lines are unjustified, arguing there is no shortage of metal.

Instead, they said the long lines have been created by traders trying to move metal to rival warehouses that are offering financial incentives in a bid to boost their own rental income.

Madden said Goldman's offer does not deal with the record high physical prices being paid by steelmakers and carmakers and other industrial customers, even though the market is in a chronic surplus.

"We believe the focus should remain on the warehouse ownership issue and the reform of LME warehousing rules," Madden said.

Goldman said its offer applies only to large metal consumers like carmakers and soft drink producers, not to financial traders like hedge funds, or rival merchant commodity traders like Glencore Xstrata or Trafigura.

Goldman President Gary Cohn told CNBC television on Wednesday that no consumers had stepped forward to take up the offer.

The queues have caused the price premium on some metals, like oversupplied aluminum and zinc, to surge, prompting accusations that the banks and traders that own storage facilities are artificially inflating prices and distorting supplies.