In new warehousing suit, Goldman, JPMorgan sued over zinc

Reuters - UK Focus

(Repeats Friday story with no changes to text)

By Andrew Longstreth and Josephine Mason

NEW YORK (Frankfurt: HX6.F - news) , May 23 (Reuters) - Wall Street banks, big metalmerchants and the London Metal Exchange face a lawsuit allegingthey have artificially inflated zinc prices, expanding ahigh-profile legal case that has until now centered on thelarger aluminum market.

In a filing on Friday, Duncan Galvanizing, one of the oldestgalvanizers in the United States, accused Goldman Sachs Group (Frankfurt: GOS.F - news) Inc, JPMorgan Chase & Co (NYSE: JPM - news) , the LME and metalwarehouse operators of conspiring since 2010 to manipulate theU.S. zinc price.

The suit, registered in the Southern District of New York,is the first to include allegations over the impact ofwarehousing on the smaller, niche zinc market. Zinc is used tocoat steel to protect against corrosion.

The lawsuit names as defendants the mining and commoditiestrading group Glencore Xstrata (Other OTC: GLCNF - news) and its Pacorini MetalsUSA LLC unit. Metro International Trade Services, the metalwarehousing of Goldman Sachs (NYSE: GS-PB - news) , is also named a defendant.

The lawsuit, which seeks class action status, echoes theallegations made in 26 suits that have been consolidated into aclass-action suits over alleged price fixing of the aluminummarket in the United States.

JPMorgan and Glencore declined to comment on the lawsuit. Aspokesman for Goldman Sachs said it intended to "vigorouslycontest the suit."

LME did not respond to a request for comment.

Frustration over long waiting times and inflated prices atmetals warehouses across the world has led to growing criticismof banks that own commodity assets and trade raw materials andhas captured regulatory and public attention in the UnitedStates.

Complaints about escalating costs of aluminum by major userslike Coca Cola (NYSE: KO - news) and MillersCoors which use the metal to makebeverage cans have caught public and political attention, butlong queues and inflated prices have been a big problem acrossother base metals, market participants say.

The lawsuit claims the defendants used a variety of means torestrain trade in zinc, including by manipulating LME rules toensure long queues for metals and shuttling zinc betweenwarehouses for no reason other than to "cause and exacerbateanticompetitive effects."

Like aluminum, physical prices of zinc have soared in recentyears due to the queues, costing endusers billions of extradollars each year.

Premiums, paid on top of the benchmark LME zinc price forphysical delivery, have soared since 2010, Richard Brooks, whoowns Duncan Galvanizing, a small family-owned coating companybased in Massachusetts, said on Friday.

He pays between 8 and 10 cents per lb for zinc premiums, upfrom 2-4 cents four years ago before the long wait timesappeared.

"If we can stabilize the pricing, it can make the marketcompetitive for us again," said Brooks, whose company coatseverything from microchips with gold to bridges with zinc, byphone on Friday.

"I'm a small player and I enjoy being in business. It's notfor the reward. It's for what's right."

Most of the ire over zinc queues is centered on LMEwarehouses in New Orleans, where 80 percent of the zinc in theexchange-registered stockpile is stored. Pacorini operates mostof the sheds in that port city.

The lawsuit will likely stir the debate over how to solvethe years-long problem over long queues that have plagued theLME for years.

The exchange, the world's biggest and oldest metal exchange,has announced plans for a sweeping overhaul of its storagepolicy aimed at easing logjams.

Facing political and regulatory pressure for its involvementin physical commodity markets, Goldman Sachs this week put Metro (Berlin: MEO.BE - news)up for sale. JPMorgan is selling its physical commoditiesbusiness, including its warehousing unit Henry Bath.

The case is Duncan Galvanizing Corp v. The London MetalExchange, et al, U.S. District Court, Southern District of NewYork, No. 14-03728. (Reporting by Andrew Longstreth and Josephine Mason; Editing byMohammad Zargham & Kim Coghill)

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