From cartels to futures. The aluminium industry, the London Metal Exchange and European competition policies, 1960s–1980s

Abstract

In 1978, the London Metal Exchange started a futures trade for aluminium. Before then, the global aluminium trade was regulated by a producers’ list price, which was settled through cartel networks and served as referral for the market price. Many observers agree that the start of the futures was a turning point for the aluminium industry because it reshaped global markets and the strategies of the main actors into the industry. Despite this recognition, little attention has been paid to the factors behind this change. This article shows that this outcome was helped by an antitrust action of the European Commission. Discussing the weight that the European Commission held in this change, this research brings new evidences about the nexus between competition policies and the governance of global market for commodities. One major conclusion is that the European antitrust contributed in making the producers’ list prices unworkable, assisting the emergence a new pricing system.

Keywords:

• Commodity trade
• international cartels
• competition policies
• futures
• produce exchanges
• metal traders

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Correction

Disclosure statement

No potential conflict of interest was reported by the author.

Acknowledgments

I would like to thank Neil Rollings and Laurent Warlouzet, for having ssked me to contribute to this special issue and for their reading on draft version of this article, and the anonymous reviewers, for their usuful criticism and suggestions. Many thanks also to Dominique Barjot, Valerio Cerretano, Hans-Otto Frøland, and Philippe Mioche for their useful comments. This research would not be possible without the help of many archive centers: in particular, I would like to thank the Institute for the History of Aluminium, in particular Ivan Grinberg, and the Archives of the European Commission, in particular Jocelyne Collonval. As usual, I am solely responsible for all mistakes.

Notes

1. Tarring, ‘Twenty Years On’, Metal Bulletin, no. 25.08.1978, 1–3. Tarring, ‘The Man from Mars’, Metal Bulletin, no. 5.09.1978, 1–2.

2. According to the firms’ correspondence, the dossier of accusation was received during August 1978. The news was reported on The Financial Time in September, the 15^th while on the Economist published a report titled ‘Aluminium. Probing the club’ on the issue of September, the 23^rd.

3. Official Journal of the European Communities, No. L 92/1, 30.03.1985, Commission Decision of 19 December 1984 relating to a proceeding under Article 85 of the EEC Treaty, IV/26.870 – Aluminium imports from Eastern Europe, 85/206/EEC.

4. Nappi, L’Aluminium. Lesclous, Histoire des sites. Litvak, Maule, ‘Assessing industry concentration.’ Peck, The World Aluminum Industry. Barham, States, Firms, and Raw Materials.

5. About contemporary actors, For instance, Ian Forster, the chairman of LME committee, claimed at the annual round-table of the American Metal Market Forum of October 1978 that these two facts were ‘pure coincidence.’ University of Glasgow Documents (UGD), British Aluminium Company (BACO) Archives, 347/10/7/13, American Metal Market Forum, notes by J.S. Bridgeman (BACO), 30.10.1978. LME’s in-house historical studies: Tarring, Corner! 43-54. Gibson-Jarvie, The London Metal Exchange, 199-204. Wolff, The Wolff’s guide, 156-163. Trevor Tarring was chief editor of the Metal Bulletin, a key publication of the City’s metal traders, when aluminium entered into LME trading. Robert Gibson-Jarvie was executive secretary of LME from 1970 to 1978. Rudolf Wolff & Co. was a trading firm that contributed to the creation of LME in 1877 and still in 1978 was amongst the main traders of this produce exchange.

6. Fligstein, The Architecture of Markets. North, Institutions.

7. Grinberg, Aluminum. Frøland, Ingulstad, ‘An Age of Aluminium.’ Barjot, Bertilorenzi, ‘Création et Aluminium.’.

8. Wallace, Market Control. Smith, From Monopoly to Competition. Engle, Gregory, Mosse, Aluminum.

9. Stuckey, Vertical Integration. Also monographs about aluminium firms confirm this point: Smith, From Monopoly. Perchard, Aluminiumville. Knoepfli, From Dawn to Dusk. Campbell, Mission Globale. Cailluet, Stratégies, Structures.

10. Nappi, L’Aluminium. Hachez-Leroy, L’Aluminium français. Also users recognised the exception of aluminium price stability in relation to other more volatile metals, see Bertilorenzi, The International Aluminium Cartel, 8.

11. Elliot, Skelton, Wallace, International Control in nonferrous. Ballande, Les Ententes économiques. Borkin, Welsh, Germany’s master plan. Hexner, International Cartels. Stocking and Watkins, Cartles in action. Mason, Controlling World Trade.

12. Barjot, ‘Introduction’.

13. Hachez- Leroy, ‘Le Cartel International de l’Aluminium’. Bertilorenzi, ‘Business, Politics, and Finance’. Storli, ‘Cartel Theory and Cartel Practice’. Born, Internationale Kartellierung. See also former publications on this topic: Wallace, Market Control in Aluminium Industry. Muller, Light Metals Monopoly. Watkins, ‘The Aluminum Alliance’. Marlio, The Aluminum Cartel.

14. Schröter, ‘Cartelisation and Decartelisation.’ Fear, ‘Cartels and Competition’. Fear, ‘Cartels’.

15. See for instance Cerretano, ‘European Cartels.’ Schröter , ‘Cartelisation and decartelisation.’

16. Stuckey, Vertical Integration and Joint Ventures. Holloway, The Aluminium Multinationals.

17. Bertilorenzi, The International Aluminium Cartel. Hachez-Leroy, ‘Cartel Strategies’.

18. Stigler, ‘A Theory of Oligopoly’. Levenstein, Suslow, ‘What determines cartel success?’ Levenstein, Suslow, ‘Breaking up is hard to do.’.

19. About commitment, its central role in cartels have been underlined by Spar, The Cooperative Edge. Recently, Storli “Cartel theory and cartel practice” adopted this conceptual framework, but surprisingly without referring to pricing policy.

20. Hachez-Leroy, L’Aluminium français, 299.

21. Bertilorenzi, The International Aluminium Cartel.

22. Knoepfli, From dawn to dusk, 166-167. Smith, From monopoly to competition, 416-418.

23. Barjot, ‘Performances, Strategies and Structures: Pechiney.’ Lanthier, ‘Les stratégies financières d’ALCAN.’.

24. About 1994, see Stiglitz, Globalisation and its Discontents, 173. More recent reports in ‘Goldman Sachs’s Aluminum Pile,’ The New York Times, 26.07.2013.

25. Slade, ‘The Two Pricing Systems,’ 212.

26. Goss, ‘The forward pricing function’.

27. Stein, The Economics of Futures Markets. Streit, Futures Markets.

28. Slade, ‘The Two Pricing Systems.’ Barro, ‘A theory of monopolistic price adjustment.’ Newbery, ‘Commodity-price stabilisation.’

29. (Not exhaustive) Christopher L. Gilbert, ‘Modelling market fundamentals.’ Gross, ‘A semi strong test.’ Figuerola-Ferretti & Gilbert, ‘Price volatility and marketing methods.’ Figuerola-Ferretti & Gilbert, ‘Price discovery.’ Watkins, McAleer, ‘Pricing of non-ferrous metals futures.’ Brault, ‘L’Introduction de l’aluminium.’ Mouak, Le marché de l’aluminium.

30. Slade, ‘Two pricing systems.’ Burns, ‘Futures markets and market efficiency.’.

31. OECD, Problèmes et Perspectives de l’Industrie de l’Aluminium. Delay, L’Industrie mondiale de l’aluminium. UNCTAD, Studies in the processing. UN, Les sociétés transnationales. EEC, Aluminium. Charles Rivers Associates, An Economic Analysis.

32. Nappi, L’Aluminum. Nappi, ‘L’industrie internationale de l’aluminium.’.

33. Chalmin, ‘Aluminium and the London Metal Exchange.’.

34. Nappi, L’Aluminium.

35. Waller, ‘The Story of Alcoa.’ Storli, ‘Cartel practice.’.

36. Peck, Competition in the Aluminum Industry. Smith, From Monopoly to Competition.

37. Kronstein, The law of International Cartels. Wells, Antitrust. Freyer, Antitrust.

38. Bertilorenzi, ‘Business, finance, and politics.’.

39. See for instance, Stuckey, Vertical Integration and Joint Ventures. Nappi, L’Aluminium.

40. Slace, ‘The two pricing systems.’ Means, Pricing Power. Scherer, Industrial Pricing. Tisdell, The theory of price uncertainty.

41. Peck, Competition in the Aluminum Industry.

42. Bertilorenzi, The International Aluminium Cartel. On commodity agreements in post-1945 world, see Nappi, Commodity Market Controls.

43. Hachez-Leroy, ‘La construction européenne.’.

44. Coppolaro, The making of a world trading power.

45. Hachez-Leroy, ‘La construction européenne.’.

46. See for instance, about zinc see Tsokhas, ‘The Rise and Decline,’ about nickel see Cairns, ‘Changing structure,’ and about tin see : Hillman, The International Tin Cartel. About coffee, Greenstone, ‘The Coffee Cartel.’.

47. Gerber, Global Competition. MacGowan, The Antitrust Revolution.

48. Warlouzet, ‘Competition Policy.’ Warlouzet, Governing Europe. Ramirez, ‘La Politique de la concurrence de la CEE.’.

49. Compare with case studies contained in Patel and Schweitzer (eds.), The Historical Foundations of EU Competition Law.

50. Compare with Jones (ed.), The Multinational Trader. Jones, Merchants to Multinationals.

51. Baker and Hahn, The Cotton Kings. Lambert, The Futures. Engel, ‘Futures and risk.’ Jacks, ‘Populists versus theorists.’ Levy, ‘Contemplating Delivery.’.

52. Stanziani, The Rules of the Exchange, 261-264.

53. Chapman, Merchant Entreprise in Britain. Jones, Merchants to Multinationals.

54. Rees, Brtiain’s Commodity Markets, 342-382. In fact, it describes the key metals that were traded into LME until the eve of the 1970s, such as copper, tin, lead, zinc and silver.

55. Compare with Michie, The London Stock Exchange and Cassis, Capitals of Capital. Ball, ‘The German Octopus.’ Jones, Merchants to Multinationals.

56. Lopez-Morel, Segreto, ‘The International Mercury Cartel.’ Lopez-Morel, ‘Rothschilds' strategies in international non-ferrous metals.’ Hillman, The International Tin Cartel.

57. Hachez-Leroy, L’Aluminium français, 43-46.

58. Becker,’The German metal traders.’.

59. Bertilorenzi, The International Aluminium Cartel, 65.

60. Perchard, Aluminiumville.

61. Kipping, Cailluet, ‘Minzberg s Emergent and Deliberate Strategies.’.

62. See Bertilorenzi, The International Aluminium Cartel. Huré, Les organisations européennes de l’aluminium, Holloway, The Aluminium Multinationals. About the international joint-ventures, see Stuckey, Vertical integration and Storli & Brégaint, ‘The Ups and Downs.’.

63. Bertilorenzi, The International Aluminium Cartel, 305-307, 327-328.

64. RiotTinto Paris Archives, Pechiney Documents (hereafter RPA), 201-6-56744, Rapport du groupe de travail réuni à Zurich’, 21.05.1964; Archives European Aluminium Association. Fonds European Primary Aluminium Association (hereafter Archives EPAA), Minutes of the Foundation Meeting of the EPAA held in Dusseldorf, 11.11.1969. Institut pour l’Histoire de l’Aluminium, archives (hereafter Archives IHA), 051502BIZINFO66, Minutes of the Second Meeting of the Board of Directors held at Norfolk House, St. James’s Square, London SW1, on Wednesday, 28.09. 1972; Constitution of IPAI, 3.07.1972.

65. Mikdashi, ‘Aluminum.’.

66. RPA, 201-001-8-20514. Direction génèrale, Ententes et réunions producteurs, Compte rendu de la réuinion des producteurs européens, 4.07.1958; Compte rendu de la réunion des producteurs européens, 14.06.1961.

67. Bachmann, Aluminum as an export industry.

68. About the creation of the American strategic stockpile, see Ingulstad, ‘We want aluminium.’.

69. Virginia Historical Society, Reynolds Metals Company Records, MSS#3395 (hereafter VHS-RMC), box 109, folder 3753, The stockpile story, 1964. Heinz History Center, ALCOA records, MSS# 282 (hereafter HHC-ALCOA), box 68, folder 2, The stockpile incident, 1962.

70. VHS-RMC, box 96, folder 3394, Aluminum Association, Increasing Free World Production. An Aluminum Industry Report, 15.08.1961. RPA, 00-8-20514, Aluminium. Réunion des producteurs européens, 30.11.1961. Runions de produceurs européens, 15.02.1962.

71. VHS-RMC, box fodler 1903, Irving Lipkowitz (RMC), Memorandum. Aluminum Futures, 18.01.1963. RPA, 502/1-8-51287, New York Mercantile Exchange, Aluminum Futures Markets, 12.04.1965. Besso (Pechiney-USA) to Baudart (Pechiney France), Note. Mercantile Exchange, 14.05.1965. 201-6-56740, Brandeis Goldschmidt to Bocquentin (Pechiney), 20.10.1966.

72. As it is recorded in the archive files. HHC-ALCOA, box 68, folder 2, The stockpile incident, 1962.

73. Foreign Relations of the United States (FRUS), 1964–1968, volume IX, International development and economic defense policy, Commodities, doc. No. 296. Memorandum From the Chairman of the Council of Economic Advisers (Ackley) to President Johnson, 8.11.1965 and Editorial Note, doc. No. 297. See also Cuff, ‘Stockpile and Defense Escalation.’.

74. RPA, 502/1-8-51287, Réunion du Club de Zurich, 29 Sep. 1966. Note. ALCOA. Visite de M. Harrison (ALCOA), 11.08.1967.

75. RPA, 502/1-8-51287, CR de la Réunion des producteurs d’aluminium à Zurich, le 16 Janvier 1964.

76. RPA, 201-6-56739, Pechiney, Note sur la protection des industries de l’Aluminium dans le cadre de la CEE, 21.02.1966. EPAA Archives, Note. Meeting the Board of Trade. Re: Eastern Metal, 16.06.1967. BACO, The United Kingdom and the Eastern Metal Agreements, 9.11.1978.

77. RPA, 201-6-56740, Compte Rendu de la réuinion des producteurs à Bruxelles, 4.03.1964.

78. RPA, 201-6-56739, Pechiney, Protection douanière de l’aluminium dans la CEE. Note à Monsieur Bocquentin de G. Baudart, 25.02.1966.

79. RPA, 201-6-56739, Note. Accords Brandeis, 30 Oct. 1967. 201-6-56742, Castera (Pechiney), Accords Brandeis, 27.11.1978.

80. See for instance Adler-Karlsson, Western Economic Warfare, Jackson, The Economic Cold War. A good exception is Kostecki, The Soviet Impact.

81. Jensen-Eriksen, ‘The Cold War in Energy Markets.’.

82. Segreto, ‘East-West Trade.’.

83. Vernon, ‘Soviet Commodity Power.’.

84. Bertilorenzi, The International Aluminium Cartel.

85. EPAA Archives, BACO, The United Kingdom and the Eastern Metal Agreements, 9.11.1978.

86. RPA, 201-6-56740, Brandeis, Réunion des producteurs d’aluminium à l’Aluminium Zentrale – Düsseldorf, 8.11.1966.

87. Compare with Frenz, Handbook of EU Competition Law, 335; Van Bael and Bellis, Competition Law, 49-50.

88. Fellman, Shanahan, ‘Introduction. Regulating competition.’.

89. The National Archives, BT 258/1745, Note no. 3, 23.08.1967; Note no. 13, The Import of Soviet Aluminium, 19.09.1967; Restrictive Trade Practices Act, 1956. Agreements to Limit United Kingdom Imports of Eastern Bloc Aluminium. Entry on Confidential Section of the Register, 1968.

90. The National Archives, BT 258/1745, Note no. 9, 11.09.1967.

91. The National Archives, BT 258/1745, Note of a meeting. Imports of Aluminium from the Soviet Bloc, 22.12.1967. RPA, 201-6-56739, Note. Accords Brandeis, 30.10.1967.

92. RPA, 201-6-56739, Note confidentielle. Accords Brandeis, 1 Mar. 1968. Examen des questions par le renouvellement des accords Brandeis, réunion entre Escherich et Rudell (VAW) et Reuter, Matignon, Rey et Rossigneux (AF-Pechiney), 18.03.1968.

93. RPA, 201-6-56739, Rudell to Pechiney and Montecatini, 27 Mat 1969. Rudell to Jaume, re. Importations de l’Est, 17.08.1970.

94. RPA, 201-6-56739, Wonlich (Alusuisse) to Bès de Berc (Pechiney), 4.11.1970.

95. RPA, 90-5-55444, Rudell Files, Rudell to Jaume (DG IV), 2.11.1970.

96. RPA, 90-5-55444, Rudell Files, Jaume (DG IV) to Rudell, 7.12.1970.

97. RPA, 90-5-55444, Rudell Files, Proceeding No. IV/26.870, Imports of Aluminium from East-Block, 30.11.1980.

98. RPA, 020-1-4-46663, Alufinance, Note à M. Lefon, 14.01.1971. Riotinto Alcan Holding, Zurich (hereafter RHZ), Alusuisse documents, Ausschuss – Protokolle, Protokoll nr. 566, 5.12.1970.

99. This was for instance the idea expressed by Keynes in the article already quoted and in other studies, such as Lovasy, International Cartels, Bennet, International Commodity Stockpiling, Friedman, ‘Commodity-Reserve Currency,’ and Hart et al. The Case for an International. About the debate on these inventory schemes, see also Maizels, Commodity in crisis. Atsé, Commodity Futures Trading. Pindyck, ‘Inventories and the Short-Run Dynamics.’.

100. RPA, Pechiney documents, 90.1.020.DAF.156, Alufinance, Société internationale de stockage, 25.01.1971.

101. About the links between SGW and aluminium industry, see Attali, Un Homme d’Influence, 377-378. Cailluet, ‘The British Aluminium Industry.’ Fergusson, High Financer, 183-199. Perchard, Aluminiumville.

102. RPA, Pechiney documents, 90.1.020.DAF.17, Alufinance, 3.6.1971; Explanatory Note on Alufinance, 21.05.1971; 020-1-4-46663, Alufinance, Alufinance. Schéma de la vente suivie du rachat, 12.05.1971.

103. RPA, Pechiney documents, 90.1.020.DAF.17, Alufianance, Alufinance – Loan agreement, s.d. but 1971; 020-1-4-46663, Alufinance, Alufinance – Schéma de la vente suivie de rachat, 12.05.1971.

104. European Commission Archives, Brussels, BAC 383-1998-795, Alufinance DG IV 26919, Anlage zur Alufinance-Anmeldung bei der EWG-Kommission von 3.6.1971, 14.07.1971. RPA, Pechiney documents, 90.1.020.DAF.18, Alufinance. Operation relations publiques, 11.06.1971.

105. EPAA Archive, Folder 13, EEC Commission files, Minutes of hearings, case No. IV/27000, IFTRA rules, 25.09.1974.

106. Archive Pechiney, 200-8-31264, Aluminium. Note sur IFTRA 14.03.1972; CEE. Audiction du 25/9/1974 à Bruxelles. Réponse du Dr. Rudell, 30.09.1974.

107. Archives IHA, 90-12-SOL-IHA-6, Entretien du 29 Octobre 1971 de Monsieur Culver (ALCAN), Monsieur Bès de Berc, Monsieur Bernanrd (Pechiney). Archives OCDE, AL 75(2), Compte rendu succinct de la première session du groupe de travail ad hoc sur les problèmes de l’industrie de l’aluminium, tenue au siège de l’OCDE le 24 et 25 avril 1972, 10.05.1972.

108. Archives IHA, 051502BIZINFO66 John Wonhlich (Alusuisse), Assanaissement du marché international de l’aluminium, note au Aluminium Working Party, OECD, 7.06.1972.

109. RPA, 201-6-56739, Alugate III.3, Comité de Liaison, EPAA Exective Board, Compte-Rendu, 15.10.1971.

110. Archives EEC, BAC 383/1998 n. 795, 1971-1975. IV-4 26919, Alufinance, Carisi, Note pour Monsieur le Directeur Jaume, 29.06.1971; Jaume, Affaire DG IV 26919, 19.08.1972. RPA, 200-8-31264, Aluminium. Note sur IFTRA, 14 Mar. 1972. CEE. Audiction du 25/9/1974 à Bruxelles. Réponse du Dr. Rudell, 30.09.1974.

111. Daviet, ‘Saint-Gobain et les ententes internationales.’.

112. ‘La Politique de Concurrence des neuf se raffermit. Une interview de M. Albert Borschette, membre de la Commission des Communautés européennes,’ Le Figaro, 8-9.12.1973.

113. RPA, 200-8-31264, CEE, Direction générale de la concurrence to Pechiney-Ugine-Kuhlman, 17.7.1974.

114. Decision 74/292/EEC of 14.05.1974.

115. Decision 75/497/EEC of 15.07.1975.

116. RPA, 200-8-31264, Rudell, Translation of letter to the German Federal Producers, 11.10.1973. IFTRA Aluminium. Compte-Rendu de l’Audition par la Commission des Communautés Européennes, 25.9.1974.

117. RPA, 200-8-31264, IFTRA Aluminium. Compte-Rendu de l’Audition par la Commission des Communautés Européennes, 25.09.1974. EPAA archives, box 2, Minutes of the meeting held in Dusseldorf, 25.03.1976.

118. RPA, 201-6-56739, Alugate III, Commission des Comunautés Européennes, Utiger (BACO) to Castera (Pechiney), Note. Accords Brandeis v. Bruxelles, 23.06.1977.

119. All the correspondance between DG IV, the Producers, the traders and EPAA is contained in RPA, 201-6-56739, Alugate III.1, EEC Documents: DG IV to Brandeis, 5.4.1976; DG IV to Pechiney, 1.8.1976. Mandat de vèrification, 16 Nov. 1976. DG IV to EPAA, 26.1.1977. The chronology is also resumed in Arnaud (Pechiney), Les accord Brandeis. Note pour Castera, 24.6.1977.

120. Decision 85/206/EEC of 19.12.1984.

121. RPA, 201-6-56743, Alugate IV, Commission of the European Communities, Draft, Minute meeting of the hearings held in Manhattan Center, Brussels, on the 12, 13,14,15, 16, 19, 20, 21, 22, 23, 26 and 27 November 1979.

122. Bank of England Archives, 10A324/4, Report of the Commodities Co-ordinating Group (Bank of England, LME, DG IV EEC), 4.03.1979. The various contacts between DG IV and LME are resumed in this document.

123. Perchard, Aluminiumville.

124. IHA, Documents about LME, Utiger (BACO and EPAA President) to M. D.C. Clark, Department of Industry, 25.8.1976. EPAA Archives, box 12, The United Kingdom and the Eastern Metal Agreements, 9.11.1978.

125. Bank of England Archives, 10A324/4, Gold. Report by LME, 16.02.1978; Commons and Lords Hansard, Common sitting, Foreign and Commonwealth Affairs, World Commodities Centre, 26.04.1978, vo. 948, cc1361-3.

126. Ionescu, The European Alternatives.

127. IHA archives, Documents about LME, Rayner-Harwill LTD, ‘Aluminium at the London Metal Exchange. A report on the decision of the LME to launch an aluminium contract. Report compiled by David Hargreaves,’ October 1977.

128. ‘LME brings confusion to Al,’ Metal Bulletin, 30.10.1979.

129. IHA archives, Documents about LME, Rayner-Harwill LTD, ‘Aluminium at the London Metal Exchange. A report on the decision of the LME to launch an aluminium contract. Report compiled by David Hargreaves,’ October 1977.

130. RPA, 001-1-3-62939, Pechiney, Developpement du négoce international, 30.12.1982.

131. Ramirez, ‘La Politique de la concurrence de la CEE.’ Patel and Schweitzer (eds.), The Historical Foundations of EU Competition Law.

132. Smith, From Monopoly to Competition, 416. Campbel, Mission globale, vol. III, 256.

133. See for instance, Marquet, Négoce international. Maizels, Commodities in Crisis. Akiyama (ed.), Commodity markets reforms. Cottier & Delimatsis, The prospects of international trade regulation.

134. Aluminum Warehousing Antitrust Litigation, case number 1:13-md-02481, in the U.S. District Court for the Southern District of New York.

135. Smith, From Monopoly to Competition.

Additional information

Funding

This work was supported by the programme “Rita Levi Montalcini” of the Italian Ministry for education, university and research [grant MIUR - DM 352-01.06.2016]

Notes on contributors

Marco Bertilorenzi

Marco Bertilorenzi is assistant professor in economic and business history and "Rita Levi-Montalcini" Fellow at Padua University, Italy. His research interests include the evolution of business-politics relationships, the history of international trade and the history of engineers. He recently published a research monograph with Routledge about the history of the international aluminium cartel. He is curently working on the history of commodity futures trading.