From the January 01, 2011 issue of Futures Magazine • Subscribe!

Anatomy of a market corner

Squeeze Play

In the second possible case in 2010 of a corner in a commodity market, an unknown buyer, reportedly a JP Morgan Chase customer, has stockpiled up to 80% of the copper on the London Metal Exchange (LME). While many traders have tried to corner the market in a commodity, rarely has it worked. Here are a few past attempts:

  • 1869 — James Fisk and Jay Gould headed a group of speculators that sought to corner the U.S. gold market on the New York Gold Exchange. When President Ulysses S. Grant learned of the attempt, the federal government sold $4 million in gold, sending prices plummeting.
  • 1950s — Onion farmers were convinced traders on the Chicago Mercantile Exchange were responsible for wild price swings in onions. In 1955, the price fell from $2.75 a bag to just 15 cents, barely more than the cost of the bag. Congress passed the Onion Futures Act banning trading in onions.
  • 1979–1980 — Brothers Nelson Bunker Hunt and Herbert Hunt tried to corner the world’s silver supply. At one point, the brothers held more than 50% of the world’s deliverable silver. During the accumulation, silver went from $11 an ounce in Sept. 1979 to more than $40 an ounce in Jan. 1980. Prices collapsed two months later to back below $11 an ounce.
  • 1981 — The Malaysian government began buying tin futures contracts and spot physical tin in an attempt to protect its major export Ð tin. While the attempt initially worked, sending tin prices from less than £7,000 per ton to nearly £9,000 per ton just eight months later, when the LME changed its rules to allow sellers an alternative to physical delivery, tin prices fell drastically.
  • 1990s — Yasuo Hamanaka, Sumitomo Corporation’s chief copper trader, attempted to corner the international copper market by accumulating the metal over a 10-year period. At one point, he is believed to have controlled up to 5% of the world’s copper supply. He ultimately lost $2.6 billion and was later sentenced to prison for market manipulation.
  • 2010 — Anthony Ward, aka “Choc Fingers,” took delivery of 240,100 tons of cocoa valued at £658 million from NYSE Liffe this past July. That was equal to 7% of the world’s cocoa supply. The delivery left only 6,710 tons of cocoa available for delivery and pushed prices to a high of £2,732 ($4,388) a metric ton.
  • 2010 — A trader, reportedly a JP Morgan customer, has accumulated a position in copper equal to 80% of the LME supply. The move comes as there are fears of a shortfall in supply next year and three companies have announced their intentions to launch exchange-traded funds linked to copper.
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