How big banks raised the price of a 6-pack

MillerCoors says financial institutions' stockpiles of aluminum have created false shortages and driven up costs.

 

By Jason Notte 

 

 

When banks' financial chicanery resulted in Bear Stearns' and Lehman Bros.' collapse, a crushing recession and the wholesale loss of jobs, the nation's response ranged from folks exiting the workforce to activists pitching tents and occupying public spaces.

What will the response be now that the banks may have driven up the price of beer?

As the Senate banking committee listens to testimony related to the London Metal Exchange and banks' ownership of warehousing companies and their influence on aluminum prices, the beer industry says such maneuvering spiked global aluminum costs by $3 billion in the past year. Considering nearly a quarter of beer costs come from packaging, that's no small drop in the pint glass.

Tim Weiner, a global risk manager at MillerCoors, told the committee Tuesday that banks including Goldman Sachs (GS +0.01%), JP Morgan Chase (JPM +0.19%) and others gave warehouse owners approval to sit on huge stockpiles of aluminum, create artificial shortages and leave prices "inflated relative to the massive oversupply and record production."

MillerCoors, a U.S. joint venture between SABMiller (SAB) and MolsonCoors (TAP -0.63%), puts about 36 million barrels of the 59 million barrels of beer it produces each year into cans. As overhead goes, Weiner says, metal is the company's riskiest investment.

"We are challenged in managing our aluminum costs due to these LME warehouse practices," Weiner said in prepared remarks. "The aluminum we are purchasing is being held up in warehouses controlled and owned by U.S. bank holding companies, who are members of the LME, and set the rules for their own warehouses."

MillerCoors isn't the only company taking an active interest in how this Senate committee hearing plays out. Coca-Cola (KO +0.29%), Dr. Pepper Snapple Group (DPS -0.29%), Red Bull, Carlsberg Beer and sheet metal manufacturers Novelis and Ball Corp. (BLL -0.02%) also joined MillerCoors' complaint. Even the smaller craft beer industry has a stake in the outcome, with Boston Beer Company's (SAM -0.07%) Samuel Adams releasing its first canned beer this year and several other craft brewers embracing cans since 2002.

As Brewer's Friend pointed out five years ago, packaging alone accounts for 28% of the cost of a six-pack of beer. The price of aluminum that cratered below 60 cents per pound at the height of the recession in 2009 soared to more than $1.20 per pound in 2011 before settling around 81 cents, according to Kitco. During the same span, the amount of aluminum being warehoused skyrocketed steadily from 1.5 million tons to a current stockpile of nearly 5.5 million tons.

According to the Bureau of Labor Statistics and the Beer Institute, the cost of a six-pack jumped from $3.92 to $5.05 between 2001 and 2011, the last year for which information is available. However, nearly 40% (or 39 cents) of that increase occurred between 2008 and 2011, boosting six-pack prices by 8.1% during that span alone. There are many factors that affect the price of beer, but doubling the price of aluminum tends to have a more than coincidental effect on what beer lovers pay.