Alcoa is firing back against the CFTC investigation into the aluminum market and delays in approving the London Metals Exchange as a foreign board of trade.
Consumers and manufacturers, such as beer and soda companies, have reportedly lost billions of dollars since 2010 because of the rise in the metal’s price. As a result of complaints by buyers, he CFTC launched an investigation into aluminum warehousing by Wall Street banks and warehouses like Glencore Xstrata. A class action lawsuit filed in 2013 alleged that the London Metal Exchange (LME) and Goldman Sachs hoarded 1.5 million tons of aluminum at Detroit warehouses to inflate pricing.
The allegations concern the firms holding onto metals in their warehouses for longer than necessary in order to boost storage costs. This allows them to charge higher prices for aluminum upon delivery. The warehouses at issue include some in the United States and have been approved by the London Metal Exchange.
Other issues are also being investigated and were covered in 2013 subpoenas. These include shuffling commodities between warehouses, hedging practices of end users, incentive payments to producers and merchants using their facilities, and practices regarding other metals such as copper and zinc.
In light of this investigation, the CFTC has delayed a decision on the LME’s permanent registration as an exchange with direct access by U.S. traders. The agency wants the LME to ban or limit warehouse rent policies and require warehouses to speed up delivery of aluminum.
Alcoa sent a letter this week to the CFTC this week telling them they are overstepping their authority in their regulation of the leading aluminum exchange.
At the same time, the CFTC is facing a potential funding freeze in the appropriations bills in the Senate and House. The funding proposed for fiscal year 2016 is $250 million, a $77 million decrease from the amount requested by President Obama.
The freeze is tied to the need for Congress to reauthorize the CFTC. The authorization for the agency expired in 2013. In June, the House passed a bill that would reauthorize the agency but the bill required a cost benefit analysis of new rules that, among other provisions, is expected to face White House and Senate Democrat resistance.
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