Beer Cans Giving Wall Street Derivatives Regulator a Headache

Timothy Massad

Timothy Massad, Chairman of the Commodity Futures Trading Commission (CFTC).

Photographer: Andrew Harrer/Bloomberg

Beer is giving one top U.S. financial regulator a headache.

Timothy Massad, chairman of the agency that spends most of its time deep in legalese overseeing Wall Street’s most complex trades, relished talking in front of a group of beer industry executives earlier this month.

“Speaking to this audience is a nice change of pace. It’s nice because you make something that is tangible and enjoyed widely by many Americans,” Massad, head of the Commodity Futures Trading Commission told the Beer Institute in Washington. “I think I can safely predict that your products will never cause a financial crisis.”

While Massad may have been in friendly company, he’s facing more intense pressure behind the scenes to reassess how the agency oversees the aluminum that makes beer cans -- and to listen to more involved parties than just brewers.

For the past two years, U.S. agencies including the CFTC have been reviewing and urging changes in aluminum markets after brewer MillerCoors LLC and others complained of long waits, which resulted in low supply and steep costs for the metal. On the other side of the battle are aluminum producers like Alcoa Inc., which are suffering from lower prices.

Tumbling Prices

Alcoa, the biggest U.S. producer of aluminum, and a half-dozen allies in Congress, have urged Massad to either back off on the agency’s policies seen as benefiting brewers or set up a public committee to discuss how to oversee the market.

In a letter to Massad earlier this year, Alcoa said CFTC was overstepping its authority and improperly influencing rules that regulate storage times set by the London Metal Exchange, the world’s biggest exchange for the metal. In a letter deferring its decision on whether to grant LME’s request for permanent registration, the CFTC told the exchange in March that more progress is needed in reducing the wait times in warehouses for aluminum.

Alcoa wants the CFTC and LME to pause before taking more action to reduce the queues. A premium to deliver the metal from warehouses in the U.S. Midwest, which also influences how much producers such as Alcoa can charge, has tumbled by 65 percent in the last 12 months. Those price declines as well as a glut of aluminum from China have hurt producers’ share prices. Alcoa has dropped 39 percent in the last 12 months.

Alcoa wants a “fair, inclusive and open” process to discuss the matter at a CFTC advisory committee in order to avoid “potentially unnecessary and disruptive regulatory intervention,” Bill Oplinger, the company’s chief financial officer, told Massad in a letter after a meeting with the regulator in Washington on Aug. 26.

Earlier this year, Alcoa filed a freedom of information request about the CFTC’s views on the matter.

Indiana Lawmakers

Last month, a bipartisan group of four House lawmakers sent a letter to Massad asking him to pause and consult with big producers and consumers of aluminum.

“The regulators and operators of futures markets have a fundamental obligation to ensure that derivatives markets fairly and accurately price commodities for all participants,” Texas Representative K. Michael Conaway, the Republican chairman of the House Agriculture Committee overseeing the CFTC, said in the letter. “Hearing from all affected parties is essential to fulfilling that duty.”

The letter was also signed by Representatives Larry Bucshon and Jackie Walorski, both Indiana Republicans, and Suzan DelBene, a Washington Democrat.

Separately, Indiana Senators Joe Donnelly, a Democrat, and Dan Coats, a Republican, each sent a similar letter. Alcoa has a major plant in Indiana.

Senator Sherrod Brown, an Ohio Democrat, had previously pressed the CFTC to review the aluminum market and ensure the LME was operating appropriately. He’s now open to further discussions.

“Any mechanism that brings stakeholders to the table is fair and reasonable,” Greg Vadala, a spokesman for Brown, said last week.

‘Many Brands’

The Aluminum Users Group, which includes brewers, doesn’t see the need for another advisory committee since the LME already has a committee consisting of producers and end users, said Denise Dunckel, a spokeswoman for the organization.

“It is not clear if an additional advisory committee is necessary or what the mandate of the committee would be,” Dunckel said.

Massad defended the agency’s March letter to the LME as being within the regulator’s authority.

He told reporters after his speech at the Beer Institute in Washington that he’d think about the advisory committee request.

“I’ll continue to have an open door to listen to all input,” said Massad.

He declined to comment on his favorite beer.

“I enjoy many, many brands,” Massad said.

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