Pitfalls and Pipelines - Philippine Indigenous Peoples Links

Chapter 1.2: Financial Innovations and the Extractive Industries
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latest example of this type of gross speculation has come from Glencore,
now not only one of the world’s top mining companies, but its premier
metals trader.
The London-based firm was recently accused of “tightening its grip on
the global zinc market by moving material to inaccessible locations,
forcing industrial users to pay high physical premiums for a metal that is in
surplus.” 50
With a reported 60 percent of the world’s zinc trade under its control,
Glencore is allegedly using warehouses monitored by the London Metal
Exchange “to stow away the metal and support [its own] premiums.”
William MacNamara presciently spelt out, in the Financial Times of 18
February 2010, a truth that has since become even more apparent. That
year, he said, had already been marked by volatility that reflects confusion
among market participants about what is driving metal prices and whether
“market forces” mirror fundamental demand that is capable of being
sustained:
Many analysts see metals prices themselves as unreliable, because
of the speculative money embedded in the headline price. The search
for ‘hard’ asset investments amid depreciating currencies and stagnant
returns has pushed pension funds, hedge funds and asset managers
to increase their holdings in metals such as copper or zinc.
Citigroup issued a similar warning, pointing out that “investment inflows
will not necessarily destabilize the entire metals and mining complex, but
they introduce volatility and uncertainty… For mining equity investment,
it’s like building model-foundations on shifting sand dunes.” 51
A month later, Peter Holland of Bloomsbury Minerals Economics reflected
the same reality, when commenting that there used to be “a fairly simple
mechanism by which LME [London Metal Exchange] prices were kept in
dynamic equilibrium: if there was a surplus, stocks rose and prices fell; if
there was a deficit, stocks fell and prices rose.” 52
Says Holland, however: “Commodity Index Funds (CIFs) and Exchange
Traded Funds (ETFs) have surely added a new dimension to the prices of
the raw-materials in which they invest.” After 2004, when pension funds
began “to pour money into commodities, CIFs and then ETFs certainly did
experience a surge in long-only investments”—in other words, they were
stimulated by new investment, made on the assumption that market prices
would rise because demand was also increasing.
According to Holland, there shortly followed “two crucial periods when