Winter Park, Florida 07/01/2016 - A New York judge has dismissed claims that the trading and metals warehouse affiliates of Glencore, Goldman Sachs and JPMorgan Chase engaged in a conspiracy to monopolize the trade of London Metal Exchange zinc in order to manipulate prices and fundamentals.
Duncan Galvanizing Corporation, along with other zinc purchasers, alleged that the defendants participated in anticompetitive conduct designed to ensure lengthy metals queues at LME-licensed warehouses, creating a supply constraints and artificially high prices in the market for physical zinc, according to court documents.
Starting in 2010, there was was sizeable build up zinc stocks and queues in LME-registered warehouses in New Orleans. At time that time, Goldman's Metro International, JP Morgan's Henry Bath and Goldman's Pacorini owned 54 of the 56 LME sheds in New Orleans.
The long New Orleans queues and artificially inflated premiums were the result of an alleged manipulation of LME rules, strategic warrant cancellations, shuttling zinc between LME-licensed warehouses, hording zinc in warehouses, and falsifying shipping records, the plaintiff said in their complaint.
But US District Court Judge Katherine Forrest ruled on Thursday that the galvanisers failed to prove that actions taken were the result of illegal collusion.
"The Court takes no position on whether defendants’ conduct was in fact legitimate - it remains possible that shenanigans drove up the price of physical zinc," Forrest said. "But, at long last, plaintiffs have not adequately alleged that such price movement was due to a plausible antitrust violation, as opposed to parallel, unilateral conduct beyond the reach of that statutory scheme."
"The plaintiffs cannot adequately plead their broad, five-year conspiracy simply by noting developments in the zinc market, particularly when many of those developments occurred at vastly different times over the class period such that the possibility of causation is hard to assess," she added.
Metro International and Henry Bath have since been sold to Reuben Brothers, a Swiss private equity firm, and Mercuria Energy Resources, a swiss trader, respectively. And just last week, Mercuria sold a 51 percent stakes in Henry Bath to CMST Development (CMSTD), a Chinese logistics provider better known as Zhongchu.
There is a similar case alleging aluminum price manipulation, where in companies that buy primary aluminium products alleged that several banks, traders and warehouse companies engaged a horizontal conspiracy to restrain the output of aluminium by working in concert to stockpile metal in Detroit warehouses.
In that case, Judge Forrest ruled that that the economics of arbitrage opportunities were self-evident and legal. For example, it was “sensible” for warehouse owners, who make money from charging rents, to angle for longer queues, the judge said.
The aluminium producers in December appealed the judge Forrest's ruling and asked for permission to amend their claims.