Nick Madden, VP/CPO, Novelis, Inc.

“The situation illustrates the perils of allowing industries to regulate themselves.”
— Nick Madden, Chief Procurement Officer, Novelis, Inc.

We all know about the 2007 Financial Crisis — and how it wiped out millions of jobs around the world, and we know where it began, the US Subprime and Unsecured Credit Markets.  Now that the crisis is over, many think that a lot of the rackets, many assume that tighter financial regulations are helping keep large financial institutions from screwing over the same people they boned over in writing and trading in extremely risky securities.

Wrong.

Goldman Sachs, since 2008, has been buying up MASSIVE amounts of one metal: aluminum, and storing them in warehouses everywhere, particularly in Detroit.  What are they doing with it?  Just sitting on it.

Why is this a bad thing?  Isn’t sitting on metal a good idea when it’s cheap?  Sure… always a good thing.  However, when you buy up so much of it, you’re affecting the world supply of it, not so much.  By reducing supply, you increase demand — and what happens when demand goes up and supply goes down?  Raise the cost.

In 2008, Goldman Sachs reported that they were storing 50,000 tons of Aluminum in warehouses and company owned property.  In 2010, that number increased to 850,000 tons.  At this time?  1.5 MILLION tons.   TONS.

Now, when companies want to buy aluminum domestically, as nations like China like to set prices at the state-level, companies will turn to domestic companies, like those owned by Goldman Sachs.  Because they control the aluminum, they can say “Sorry, we can’t get it to you that fast, we apologize,” when in actuality, they can delay delivery to drive up the price.  Indeed, subsidiary of Goldman, before purchasing, was able to supply aluminum to its end-users, was 6 weeks.  After the purchase and management rearrangement by Goldman, the wait is now sixteen MONTHS.

How much, you say?  What’s YOUR bottom line?

According to Cenk Uygur with The Young Turks, the price increase at this time, broken down per aluminum can of soda/pop, is one tenth of cent, per can — equivalent.  While that doesn’t sound like a lot of money to the end user, that makes a massive dent in the profits of the initial supplier, such as the Soda company, in this case, to buy and manufacture the soda cans.  At Goldman’s level, however,

With the average of US$90 million worth of aluminum cans (ALONE) used in the US, and tons and tons of aluminum used in house sidings, wheels in automobiles, automobile body, anything you can think of.  On average, that increase works out to be roughly US$2 per every 35 pounds of aluminum.  With the average automobile using 12 pounds of aluminum (The New York Times), that adds up to US$12 in additional cost — that didn’t come from anywhere other than artificially controlling the supply to demand — only by slowing down aluminum shipment… that it owns, and stores.

Bottom line, from the entire operation of aluminum storage and shipment control, Goldman Sachs’ cut of the operation: US$5 Billion over the last three years.  (Thanks again, to The New York Times for this figure.)

Madden’s quote at the beginning of this entry has a lot sharper a point on it now, doesn’t it?  What do you think?

Related articles

• Goldman Sachs Actually Holds Close to 25% of the US Aluminum Supply (forbes.com)
• Goldman Sachs committed to Metro warehouse business -executive (uk.reuters.com)
• John Oliver lambastes Goldman Sachs for screwing America without fear of jail (rawstory.com)
• The Daily Show on Goldman Sachs’ Aluminum Manipulation (ritholtz.com)
• Goldman Sachs Took $5 Billion From Consumers By Moving Metal Around (gawker.com)
• Goldman Sachs denies aluminium price-rigging – Telegraph (telegraph.co.uk)
• How Goldman Sachs Robbed You Of Five Billion Dollars (davidicke.com)
• Goldman Sachs Devises Brilliant Plan To Fix Its Clients’ Long Wait For Aluminum Delivery (GS) (businessinsider.com)
• Are Aluminum Prices Being Artificially Raised By Goldman Sachs? (familysurvivalprotocol.com)
• Goldman Sachs Makes $255 Million Storing 3% of Global Aluminum Production (forbes.com)