THE SUMITOMO DEBACLE : Copper Central : A Long Beach Warehouse Is Home to Tons of the Metal
Forklifts prowl stadium-sized warehouses full of 8-foot stacks of copper plates. With their rippled edges, the plates resemble yard-square postage stamps.
In Long Beach, on former farm land flanked by freeways, rail lines and stucco tract homes, Metropolitan International Trade Services stores the metal that is central to the scandal that has cost trading giant Sumitomo Corp. at least $1.8 billion.
Bundles of plates are matched by numbers to warrants, each representing 25 tons of copper. Metro International, under a storage contract with the London Metal Exchange, issues the warrants in England, from where the LME dominates world copper trading.
Sumitomo blames the debacle on a decade of secret transactions by a former star trader, Yasuo Hamanaka. Hamanaka was nicknamed “Mr. Five Percent” and “The Hammer” for the share of the global copper trading market he was believed to control and the power that gave him.
In October, copper prices ricocheted up and down on rumors that Sumitomo was keeping prices high and that Hamanaka controlled warrants for 70% of the 39,025 metric tons then stored in Long Beach. It appeared that massive amounts of copper were going into the warehouses but little was coming out.
In November, regulators at the U.S. Commodity Futures Trading Commission opened an investigation of Long Beach deliveries and withdrawals, which is ongoing, Metro President William Whelan said Monday.
But it was not until early May that Sumitomo removed Hamanaka and copper prices plunged amid rumors that the Japanese company was liquidating its positions.
“May was an extremely busy month for us,” Whelan said from Metro International headquarters in Romulus, Mich. He declined to elaborate.
Whelan and his on-site manager and vice president, John Yeskel, said they cannot disclose who delivers and picks up the copper. They denied knowledge of trading in the warrants. The company’s job is only to keep precise tabs on inventory and arrange for pickup and delivery if asked, they said.
“It has no effect on me what Sumitomo wants to do. It would only affect the traders,” Yeskel said, gesturing toward a warehouse as big as two football fields. “I have no idea who owns the warrants to anything out there.”
Metro International operates warehouses in foreign trade zones in Long Beach, San Diego and Detroit. Goods are technically in the custody of U.S. Customs authorities while stored there duty-free. Firms can assemble, repackage, inspect or test goods and pay applicable duties only when the goods are shipped out.
In addition to metals, Metro International warehouses goods such as electronics, apparel and liquor, Whelan said. It won a contract from the LME five years ago to store metals, including aluminum alloy, zinc and tin.
Business skyrocketed in April 1994 when the LME established huge copper warehouses in the U.S. and other countries, including the Netherlands and Singapore. Copper now constitutes 70% of Metro International’s metals warehousing and half its total business in Long Beach, Whelan said.
LME copper inventories at warehouses in Long Beach and adjacent Carson, about a quarter of total LME stockpiles, rose by 1,475 tons to 69,150 tons since Friday. Supplies at the warehouse are down about 10% since Sumitomo removed Hamanaka from his trading desk in May. To be sure, Sumitomo could sell warehoused copper without removing it from storage.
