Billionaire Vladimir Potanin, the head of the world’s largest producer of nickel and palladium, urged regulators to take measures to prevent banks from manipulating markets by storing and trading metals.
“Banks should be focused on their core business, which is definitely not keeping metals stockpiles,” Potanin, OAO GMK Norilsk Nickel’s chief executive officer, said in an interview in Moscow. “Regulators should really look into this issue closely and facilitate measures to change the situation.”
The U.S. Federal Reserve said July 19 it will review a decade-old decision that physical commodities are complementary to banking, allowing lenders such as Citigroup Inc. and JPMorgan Chase & Co. to operate in both industries. The move into physical commodities has exposed the banks to political and regulatory pressure, as well as allegations of price manipulation. On July 27, JPMorgan said it plans to get out of the business of owning and trading physical commodities.
Banks’ direct involvement in commodities warehousing and trading creates risks in the market, said Potanin, who is the biggest shareholder in Norilsk with more than 28 percent.
“It damages the stability of the market and affects the supply-demand balance, which should define commodities prices, rather than the amount of metals that banks keep,” Potanin said in the July 23 interview. “All kinds of non-core bank activities are bad for the market and the economy in general.”
The aluminum market has been hurt the most by stockpiles, which absorb a “significant” part of global output, while other metals are also affected to a lesser degree, Potanin said.
Aluminum has declined 13 percent this year to $1,799 a ton on the London Metal Exchange, and nickel dropped 19 percent to $13,810 a ton. Palladium is up 3.6 percent this year in London.
Norilsk cut nickel production to 67,800 tons in the second quarter, a 5 percent decline from the previous three months, the company said today.
“About 35 percent of nickel producers are working below their cost of production,” Potanin said. “We expect some output cuts in the near term, which will help the price go up.”