You would think that a strengthening global economy would be gobbling up commodity stockpiles. In fact, the opposite appears to be occurring. The Financial Times reports that “as piles of base metals from aluminum to nickel build up due to poor demand, Goldman Sachs and JPMorgan have entered the little known but very profitable business of metal warehousing.”
The FT says that metals warehousing is an anti-cyclical business that prospers when demand for metals is lacklustre and stockpiles mount. It is not a cheap business to get into. Goldman bought Metro International of Detroit for about US$550-million a week ago. JP Morgan purchased Henry Bath of the United Kingdom a month ago as part of a larger US$1.7-billion acquisition. Both warehouse deals are said by industry insiders to have occurred at premium valuations.
The purchase of metals warehouses would seem to indicate that Goldman and JPMorgan aren’t exactly bursting with enthusiasm about the sustained strength of this recovery. Or about the outlook for commodities.
Freelance business journalist Ian McGugan blogs for the Financial Post