2nd UPDATE: Goldman Under Fire From Aluminum Users Over Warehouse Delays

LONDON, June 16 -- Goldman Sachs Inc. (GS) is under fire from major aluminum users like U.S. can maker Coca-Cola Co. (KO) that say the investment bank is costing them time and money because of delays in getting metal from warehouses owned by a unit of the bank.

Consumers say that Goldman's warehousing firm, Metro International Trade Services, is deliberately removing the minimum amount of aluminum--1,500 metric tons a day--from its facilities in Detroit, and that it could remove a lot more, erasing supply bottlenecks and lowering delivery premiums in the process.

"It takes two weeks to put aluminum in, and six months to get it out," said Dave Smith, strategic procurement manager at Coca-Cola. "The situation has been organized artificially to drive premiums up."

Coca Cola secures the majority of its metal from long-term contracts with suppliers. The company declined to say how much aluminum it buys annually, citing competition concerns.

But the complaints aren't likely to be soothed anytime soon. The board of the London Metal Exchange Thursday failed to reach consensual agreement on a way to resolve the thorny issue that has driven consumers, traders and banks alike to complain to the exchange--namely, that long delays in accessing metal from warehouses, particularly in Detroit, have driven the cost of buying metal in the physical market significantly higher.

Around a quarter of the aluminum held in the LME's warehousing system is stored in Detroit--1.15 million tons, out of a total 4.62 million tons. Warehouses owned by Metro store over 900,000 tons of this. It would take 600 days, or 120 working weeks, to deliver out 900,000 tons.

The LME said it is giving "further consideration" to any changes it might make to delivery rates at locations where one company has over 900,000 tons in its warehouses. The LME board did, however, decide to approve a minimum daily rate for deliveries of metal from warehouses of 2,000 tons for each 300,000-600,000 tons stored per company at each location, and 2,500 tons per 600,000-900,000 tons stored.

Goldman declined to comment.

The U.S. bank bought Metro last year amid a spate of similar acquisitions by banks and merchants, which intensified concerns over the independence of storage facilities. Glencore International PLC (GLEN.LN) bought the metals-warehousing operations of Italian family-owned Pacorini Group, Swiss merchant Trafigura Beheer BV acquired U.K.-based warehouse company NEMS and J.P. Morgan Chase & Co. (JPM) bought warehouse operator Henry Bath as part of its purchase of some of the commodities assets of RBS Sempra.

But the U.K.'s Office Of Fair Trading dismissed concerns that ownership of warehouses gives certain market players an unfair advantage, saying Tuesday that there were no "obvious competition issues that would merit further investigation at this stage."

It isn't just consumers that are frustrated at the situation in Detroit. An even larger portion of those complaining are banks, merchants and traders who have metal that they can't immediately get to.

Producers are less fazed, although many are able to charge more for their metal when asked for it. "You can't blame the warehouses (for high premiums)--it's a question of supply and demand in general," Klaus Kleinfeld, chief executive of Alcoa Inc. (AA), told Dow Jones Newswires.

To be fair, the logistics of taking metal out of warehouses are challenging. Due to size and weight factors, each truck can carry around just 20 tons of aluminum. This means it takes 75 trucks to load out 1,500 tons each day, the minimum required under LME rules. It takes around 20 minutes to load a truck assuming that all the metal is in one location. Very often, metal is in different storage facilities sometimes more than 20 miles apart. Trucking firms work eight-hour shifts, charging more for hours outside of this timeframe.

Warehouses played a critical role during the economic downturn, when demand from aluminum in its key consuming sectors of automotives and aerospace slumped, and traders say the price of the metal could arguably be significantly lower.