Someone Is Trying To Corner The Copper Market

Tyler Durden's picture

It may not be as sexy as gold and silver, but sometimes even doctor copper needs a little squeeze and corner love as well, and according to Bloomberg, that is precisely what someone is trying to do.

One company whose identity is unknown, is "hoarding as much as half the copper available in warehouses tracked by the London Metal Exchange."

However, unlike the famous cornering of silver by the Hunts in 1980 which sent the price soaring if only briefly, in this case the unknown manipulator is trying to push the price of the physical lower. By taking control of half the available copper, the trader can help drive up the fees associated with rolling forward a short position, making it tougher for speculators to keep their bearish, explains Bloomberg.

Indeed, as shown in the chart below, this week the borrowing cost jumped to the highest in three years, almost as if someone is desperately trying to punish the shorts in a strategy very comparable to what Shkreli did with KBIO, when he bought up 70% of the outstanding stock and then made removed his shares from the borrowable pool, forcing a massive short squeeze.


In its disclaimer warning, Bloomberg writes that the episode, which caught traders by surprise "is one example of the perils of trading on the London Metal Exchange, where contracts are physically settled and speculators can end up paying dearly if they leave their bets without an offsetting position. Money managers are holding a net-short position on the LME, with prices down 23 percent in the past year and no sign of a recovery in Chinese demand."

Meanwhile, market participants are quietly moving to the sidelines ahead of what may be some serious copper price swings:

"A big trader is probably trying to squeeze the market," said Gianclaudio Torlizzi, the managing director of T-Commodity srl, a Milan-based consultancy.“It’s an indication the supply side in copper is tightening."

Bloomberg adds that yesterday was the third Wednesday of the month, when many traders settle their commitments. To renew a short position, traders have to buy back metal while selling it forward. The tom-next spread, a measure of how much the process costs over one day, jumped as high as $30 a metric ton on Tuesday, the highest since May 2012.

The declining amounts of physical copper mean that liquidity in the metal is evaporating, resulting in violent, sharp price swings. The amount of metal available in warehouses has dropped more than 40 percent since August, making it costly to roll shorts.

So who is trying to corner the plunging in price metal? According to Bloomberg, the suspect who controls a large portion of the copper is an unidentified company. "Two firms held 40 to 49 percent of copper inventories and short-dated positions, according to Jan. 19 exchange data that shows holdings as a proportion of available stockpiles. While the LME provides data on the approximate size of large positions, it doesn’t disclose who is behind them."

One wonders if perhaps the question is not which company is behind the cornering, but rather which country.

Still, no matter who is behind this attempt to artificially push copper prices higher - which may explain the recent industrial metal strength - one can't help but wonder how it plays out, because there is hardly a "cornering" episode in history that does not end in tears.

And certainly not in copper, where cornering attempts are nothing new, but perhaps few instances of manipulation are quite as infamous as that of "Mr. Copper" Yasuo Hamanaka.  For those who are unfamiliar, here is a brief recap of what happened in the mid-1990's.

The Copper King: An Empire Built On Manipulation

The commodities market has grown in importance since the 1990s, with more investors, traders and merchants buying futures, hedging positions, speculating and generally getting the most out of the complex financial instruments that make up the commodities market. With all the activity, people dependent on futures to remove risk have raised concerns over large speculators manipulating the markets. In this article we'll look to the past for one of the biggest cases of market manipulation in commodities and what it meant to the future of futures.

The 5%

There is still a sense of mystery surrounding Yasuo Hamanaka, a.k.a. Mr. Copper, and the magnitude of his losses with the Japanese trading company Sumitomo. From his perch at the head of Sumitomo's metal-trading division, Hamanaka controlled 5% of the world's copper supply. This sounds like a small amount, since 95% was being held in other hands. Copper, however, is an illiquid commodity that cannot be easily transferred around the world to meet shortages. For example, a rise in copper prices due to a shortage in the U.S. will not be immediately canceled out by shipments from countries with an excess of copper. This is because moving copper from storage to delivery to storage costs money, and those costs can cancel out the price differences. The challenges in shuffling copper around the world and the fact that even the biggest players only hold a small percentage of the market made Hamanaka's 5% very significant.

The Setup

Sumitomo owned large amounts of physical copper, copper sitting in warehouses and factories, as well as holding numerous futures contracts. Hamanaka used Sumitomo's size and large cash reserves to both corner and squeeze the market via the London Metal Exchange (LME). As the world's biggest metal exchange, the LME copper price essentially dictated the world copper price. Hamanaka kept this price artificially high for nearly a decade leading up to 1995, thus getting premium profits on the sale of Sumitomo's physical assets.

Beyond the sale of its copper, Sumitomo benefited in the form of commission on other copper transactions it handled, because the commissions are calculated as a percentage of the value of the commodity being sold, delivered, etc. The artificially high price netted the company larger commissions on all of its copper transactions.

Smashing the Shorts

Hamanaka's manipulation was common knowledge among many speculators and hedge funds, along with the fact that he was long in both physical holdings and futures in copper. Whenever someone tried to short Hamanaka, however, he kept pouring cash into his positions, outlasting the shorts simply by having deeper pockets. Hamanaka's long cash positions forced anyone shorting copper to deliver the goods or close out their position at a premium.

He was helped greatly by the fact that, unlike the U.S., the LME had no mandatory position reporting and no statistics showing open interest. Basically, traders knew the price was too high, but they had no exact figures on how much Hamanaka controlled and how much money he had in reserve. In the end, most cut their losses and let Hamanaka have his way.

Mr. Copper's Fall

Nothing lasts forever, and it was no different for Hamanaka's corner on the copper market. The market conditions changed in 1995, in no small part thanks to the resurgence of mining in China. The price of copper was already significantly higher than it should have been, but an increase in the supply put more pressure on the market for a correction. Sumitomo had made good money on its manipulation, but the company was left in a bind because it still was long on copper when it was heading for a big drop.

Worse yet, shortening its position - that is, hedging with shorts - would simply make its significant long positions lose money faster, as it would be playing against itself. While Hamanaka was struggling over how to get out with most of the ill-gotten gains intact, the LME and Commodity Futures Trading Commission (CFTC) began looking into the worldwide copper-market manipulation.


Sumitomo responded to the probe by "transferring" Hamanaka out of his trading post. The removal of Mr. Copper was enough to bring the shorts on in earnest. Copper plunged, and Sumitomo announced that it had lost over $1.8 billion, and the losses could go as high as $5 billion, as the long positions were settled in a poor market. They also claimed Hamanaka was a rogue trader and his actions were completely unknown to management. Hamanaka was charged with forging his supervisor's signatures on a form and was convicted.

Sumitomo's reputation was tarnished, because many people believed that the company couldn't have been ignorant of Hamanaka's hold on the copper market, especially as it profited from it for years. Traders argued that Sumitomo must have known, as it funneled more money to Hamanaka every time speculators tried to shake his price.


Sumitomo responded to the allegations by implicating JPMorgan Chase and Merrill Lynch. Sumitomo blamed the two banks for keeping the scheme going by granting loans to Hamanaka through structures like futures derivatives. All of the corporations entered litigation with one another, and all were found guilty to some extent. This fact hurt Morgan's case on a similar charge related to the Enron scandal and the energy-trading business Mahonia Ltd. Hamanaka, for his part, served the sentence without comment.

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jomama's picture

Yes, yes, next someone will be trying to corner the Aluminum market.

bamawatson's picture

i used to cop at the corner market

Latina Lover's picture

Banksters, fucking us as usual.

greenskeeper carl's picture

I think my neighbor might be in on this as well. You should see the stack of boxes full of stripped wire he has in his garage. Its an old guy, retired, him and a friend get all the leftovers from three electrical contractors. He lives off SS and whatever pension he has, I forget where he worked, but he told me each box in his garage is 50 pounds of copper, and they are stacked up floor to ceiling in his garage. He says they are waiting on the price to come up before they sell. He has to have thousands of pounds of it in there.

Xibalba's picture

Almost like the Fed is trying to send the msg that it's not imploding all around them?

Automatic Choke's picture

this makes no sense, article claims somebody is holding half physical to cause a short squeeze and drive prices lower ????

Tyler, do you proofread?

0b1knob's picture

Back in about 2012 there was a similar scheme to corner the aluminum market.   This involved warehouses in Detroit which stored thousands of tons of aluminum which were never reported to the LME since all the aluminum was "in transit" at least on paper or some nonsense.  Some background here:

I think the whole thing broke down eventually.  


Goldenballs's picture

When did J.P.Morgan move in next door and does he have any nail guns in there ?



Agstacker's picture

I save all pennies from 1981 and earlier, 95% copper.

Uchtdorf's picture

Some of the 1982 pennies, too. A decent scale and a sharp eye will help you save the right ones.

Bunghole's picture

I can usually spot them without looking at the date.

The relief on the outer rim is more pronounced on the pre 82's.

COSMOS's picture

Most likely because copper is softer the impresson of the dye makes for a better relief.

Goldenballs's picture

Government will have to confiscate the boxes in his garage,they could fall into the hands of terrorists,very naughty indeed.

Cliff Claven Cheers's picture

But did you see Adele's Hello hit a billion views yesterday on Youtube?  Must be a lot of broken hearts in the world.

indygo55's picture

Just call up the NSA and ask them for the names and addresses of the people cornering the copper market. Should take about half a minute.



Soul Glow's picture

But not the silver market?  Amateurs.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Jan 21, 2016 5:54 PM

I admit it, it was me... It's for my moonshine still operation

thinkmoretalkless's picture

I can't let you take the rap...its me...I'm manufacturing knock off Coppertone Tanning products

Singelguy's picture

Who wants to bet that Goldman Sucks is behind this?

knukles's picture

Yep!  Them and their warehouse operations 

undertow1141's picture

It'll be somebody like North Korea. 

"I crass yo hore ecronomy, no cropper foh yu."

DirkDiggler11's picture

I was thinking it was a last ditch effort by Glencore.

Kaiser Sousa's picture

Stockman just bitch slapped the assholes on Fast Money...

for the record...the host of the show is a cocksucker...

Boris Badenov's picture

Pres. Trump oughta give David his old job back when he gets in. 

GotGalt's picture

LOL, the fast money crew was practically trying to leave the set as Stockman was going on his rant, ha ha.  Love it.  Inconvenient truths tend to be inconvenient to those captured by the wall st. craze.

Wild Theories's picture

first suspect to pop into my head... Glencore

Apocalicious's picture

Glencore's puking. This is Red Kite.

Wild Theories's picture

ah, checked out their work, a repeat of old tricks?

TheReverend's picture
TheReverend (not verified) Jan 21, 2016 5:58 PM

Its a company owned by Goldman Sachs - Goldman hordes everything. 

brushhog's picture

Smart time to buy. It's a fire sale in commodities.

Kirk2NCC1701's picture

China and India thank you for the Rape & Pillage (R&P) prices, to stock up on cheap commodities.  You/we bleed, they benefit/profit.

thebigbankswebguy's picture

Stockman not only bitchslapped them but did into next week, time to run for the exit.

V for ...'s picture
V for ... (not verified) Jan 21, 2016 6:03 PM

Does this mean I lose more on copper again or less? Inquiring minds want to know. Just being mischievous. I take the loss on paper; not real til I sell it. Gawd. I am such a schmuck sometimes!

stant's picture

That's a bet on war

Apocalicious's picture

Unknown? It's fucking Red Kite...

Nero_Hedge's picture

DHS already cornered the lead market

The Saint's picture
The Saint (not verified) Nero_Hedge Jan 21, 2016 6:37 PM

Brass, smokeless gun powder and primers, too.

steelrules's picture

Blythe, up to your old tricks again?

Bunga Bunga's picture

And cornering that oil market worked out so well.

Lumberjack's picture

John Paulson and the "cornerstone" team involved in this is my bet... 


Rusal IPO attracts Rothschild, Paulson


High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email to buy additional rights.

HONG KONG – Russia’s UC Rusal, the world’s biggest aluminium maker, has attracted a who’s who list of investors prior to its planned IPO, including the scion of the Rothschild family, one of the richest men in southeast Asia, and the US hedge fund that made billions last year.

The IPO is seen as major step for Rusal, which is trying to raise cash amid massive debt restructuring, and for Hong Kong, a financial centre that is trying to attract more publicly traded companies from beyond Asia.

According to two sources involved in the IPO, Rusal’s roughly $2bn Hong Kong IPO, planned for January, had attracted four cornerstone investors – investors who buy shares before a public listing, promising to hold them until a later date.

The sources said the investors included: Nathaniel Rothschild’s private investment company; Robert Kuok Hock Nien, the Malaysian-Chinese businessman said to be worth about $10bn; Paulson & Co, the New York hedge fund run by billionaire John Paulson; and Russian state-owned bank Vnesheconombank.

The sources said the official list of cornerstone investors would not be final until the prospectus became public later this week.

BlackRock is also said to be among the cornerstone investors, Reuters reported last week. VEB has pledged to buy nearly one third of the 10 per cent of the shares on offer.





Putin Declares Force Majeure on All Aluminum Exports


Russian President Vladimir Putin declared force majeure on all Russian aluminum exports to the US and Europe following the recent ruling in favor of primary producer UC Rusal against the London Metal Exchange (LME) for new rules designed to cut long aluminum load-out rates.

Despite Rusal’s win in the high court, the Russian president appeared defiant against Western demands for diplomacy with the situation in Ukraine. “I am sick and tired of hearing about these threats of sanctions from the West against us…therefore I have preemptively declared force majeure on all aluminum exports effective immediately,” the angry president told Interfax, a news agency, early on Tuesday.

“Now the West can have a taste of their own medicine,” he said.

Lumberjack's picture
Abramovich Buys $1.5 Billion Norilsk Stake in Rusal Deal


Roman Abramovich agreed to revised terms including changes to planned dividends in a deal to buy a $1.5 billion stake in OAO GMK Norilsk Nickel from United Co. Rusal, according to three people familiar with the matter.

Norilsk may distribute at least $9 billion in dividends over three years, the people said, asking not to be identified because the plan isn’t public. The figure is down from the $10 billion given last week because Abramovich will buy equities from shareholders instead of treasury stock, the people said.

The deal with the billionaire part-owner of Evraz Plc and Chelsea Football Club aims to resolve a feud between Norilsk’s shareholders. His Millhouse LLC will own 5.87 percent of Norilsk after the biggest supplier of nickel and palladium retires a 17 percent stake in treasury stock, Rusal and billionaire Vladimir Potanin’s Interros Holding Co. said today in a joint statement. Last week’s preliminary deal had Abramovich buying 7.3 percent.

Rusal, controlled by Oleg Deripaska, and Potanin are trying to settle a more than four-year battle over control of Moscow-based Norilsk by balancing their representatives on the board and giving Abramovich voting rights for a 20 percent stake to help quash shareholder disputes, according to the statement.

He will pay $160 a share to Potanin and Rusal, less than the 5,376 rubles ($175) Norilsk closed at yesterday in Moscow. The stock fell 2.1 percent to 5,266 rubles today. Rusal, Interros and Norilsk wouldn’t comment today on the dividends.


========= And the latest from today======

Russia Said to Stall Palladium Sale to Norilsk-Led Group on Rout


Russia’s central bank sees palladium prices as too low to sell stockpiled metal to a group of investors led by GMK Norilsk Nickel PJSC, according to four people with knowledge of the talks.

Negotiations on sales have stalled with prices near a five-year low, said the people, who asked not to be identified because the matter is private. Vladimir Potanin, the billionaire chief executive officer of Norilsk, said last year that the group would invest as much as $200 million buying the metal and that the Bank of Russia agreed in principle to sell.

Norilsk is the world’s largest miner of palladium, which is mostly used in devices that restrict harmful emissions from vehicles. It slid 36 percent in the past year and this month reached the lowest since 2010 after South African production rebounded and China’s slowing economy curbed demand. It’s this month’s worst-performing metal.