The bull market in metals has been generating a lot of controversy recently, with much of it involving big banks.

Recall, for example, that JPMorgan recently had to deal with all sorts of snide rumors that it was seeking to corner the copper market. Much of the controversies involve ETFs that require physical delivery of commodities. In some ways, ETFs are the biggest drivers of volatility in key markets like gold, silver, copper and the subject of this issue: Aluminum.

The aluminum controversy has heated up recently in large part because Goldman Sachs is the owner of one of the largest aluminum warehouse facilities, Metro International, a 19-building structure in Detroit. JPMorgan and Gencore also own warehouse facilities. Officials of the London Metals Exchange, which is built on the idea of physical delivery of the commodities, met recently to discuss what to do about its "roach motel" problem that has beset the aluminum market. That is to say that you can check in, but you can't check out--at least not very easily.

According to media reports, since Goldman Sachs purchased Metro, the wait time for physical delivery of aluminum has steadily increased to about seven months--much to the chagrin of companies that want the metal for real industrial use. The LME's actions were prompted in part by complaint from Coca-Cola, which is fed up with the long delays in taking delivery.

Critics say that Goldman Sachs and others charge lucrative rents and have profited by increasing the delay in delivery. At the same time, the fact that these banks are huge players in the commodities markets has given rise to conflict-of-interest charges. These delivery problems are exacerbated by the heady market activity. We've suggested before that if prices crash, and ETFs are forced to sell quickly, chaos will endure--the equivalent of a massive clearing problem that will make the recent CDS backlog look minor. The market will effectively come to a halt.

For more:
- here's a Dow Jones article

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Analysts battle over Goldman Sachs