There was once a commodity trader who was called “Mr. Copper” and once controlled the global copper market. However, it ended with a loss of 2.6 billion dollars and an eight-year prison sentence. This “Mr. Copper” is Yasuo Hamanaka, a commodity trader from Japan. Now, let’s take a look back at this case and recall how Yasuo Hamanaka manipulated the copper market and how he incurred a loss of 2.6 billion dollars.
1.Mr. Copper
In the 16th century, the Sumitomo family in Japan grew stronger due to the establishment and operation of a copper mine on Shikoku Island and became the officially designated copper supplier in Japan. After years of development, Sumitomo has owned part or all of the shares of many copper mines and smelters in countries including Chile and the Philippines around the world through forms such as holding or participating in shares, and has become an indispensable force in the world copper market. The head of this family once said that Sumitomo Corporation is the world’s largest copper exporter.
In 1970, Yasuo Hamanaka joined Sumitomo Corporation. Subsequently, he was sent by the company to the London Metal Exchange (LME) to participate in metal futures trading, officially starting his career as a trader. At first, he was just an ordinary small trader, mainly responsible for tin and nickel futures contracts. At that time, Yasuo Hamanaka must not have thought that he would cause such a big storm in the future.
A few years later, Yasuo Hamanaka turned to copper futures trading and gradually emerged in the market. With the gradual increase in trading volume, by 1983, Yasuo Hamanaka’s annual copper trading volume had reached 10,000 tons. By the end of the 1980s, he had become one of the major players in the international copper futures market. At that time, the non-ferrous metal trading department of Sumitomo Corporation led by Yasuo Hamanaka controlled 5% of the global copper trading volume, and its market position was extremely important. Yasuo Hamanaka was therefore called “Mr. Five Percent”.
At the beginning of 1987, the futures price of copper on the London Metal Exchange hovered around $1300. Yasuo Hamanaka began to allocate a large number of long-term forward contracts. In mid-1988, copper on the London Metal Exchange soared to $2500. Yasuo Hamanaka and Sumitomo Corporation thus reaped huge profits. By 1995, the amount of copper futures contracts under Sumitomo Corporation had reached as high as 2 million tons. The released capital was already sufficient to control the cash flow in the copper market. At the same time, this meant that Yasuo Hamanaka already had the ability to manipulate the market and push copper prices to unimaginable heights.
By the early 1990s, Sumitomo Corporation had already become a major long position in the London copper market. According to estimates by industry insiders at that time, from 1994 to 1996, the copper futures positions controlled by Yasuo Hamanaka were between 1 million and 2 million tons.
2.Powerful opponents emerged
However, as a futures market where both long and short positions can participate, it is obvious that long positions cannot make profits forever. Since Yasuo Hamanaka held long positions, when copper prices rose, he naturally reaped many profits. But starting from 1995, copper prices entered a bear market. At the beginning of that year, copper prices were still at $3075/ton. By 1996, they had fallen below $2600. The continuous decline in copper prices not only wiped out all the profits of Yasuo Hamanaka’s long positions but also caused quite serious losses.
So, Yasuo Hamanaka began to artificially raise prices. Under the pretext of hedging, he long-term and massively controlled copper warehouse receipts on the LME. It is reported that the LME copper warehouse receipts he controlled accounted for as much as 90% of the exchange at the highest, which also made the London copper futures market in a state of contango for a long time, with the forward prices much lower than the recent prices, thereby curbing the forward selling in the market.
Facing excessively high futures copper prices, powerful opponents emerged, including some famous investment funds such as the Quantum Fund and the Tiger Fund. They began to short in large quantities, continuously selling from above $3000/ton. The price of London copper also fell from the high of $3075/ton to around $2720/ton in May 1995. The tenacious Yasuo Hamanaka did not give in easily. In July and August of that year, he pulled copper prices back above $3000.
The abnormal fluctuations in copper prices attracted the attention of regulatory authorities. The US Commodity Futures Trading Commission and the London Metal Exchange began to conduct investigations into this. Affected by this, the price of London copper fell to around $2420. However, Yasuo Hamanaka did not give up. After a fierce battle, he pulled copper prices back above $2720. But in the end, because regulatory authorities announced restrictive measures against Sumitomo Corporation, he had to end his resistance. The futures price of London copper also plunged by $1000 within a month and fell to around $1700. Sumitomo Corporation thus suffered huge losses.
As the investigation delved deeper, the truth gradually surfaced, and a series of Yasuo Hamanaka’s illegal operations were exposed.
As his influence in the copper market grew stronger, Yasuo Hamanaka’s desires swelled.
In 1989, he collaborated with the metal trading company RST Resources. Leveraging Sumitomo Corporation’s influence in the copper market, he drove up copper prices. During this period, Yasuo Hamanaka would purchase a certain quantity of copper through Sumitomo Corporation monthly at a highly competitive price advantage. If the copper price rose above the minimum price stipulated in the futures contract, he would share the profits with the partner. Simultaneously, Yasuo Hamanaka also bought a large number of copper futures contracts on the LME. The scale was so extensive that it could sway the copper price in the market.
In 1991, Yasuo Hamanaka was warned for falsifying trading records and manipulating market prices in the LME copper market. However, for various reasons, it was not promptly dealt with. Yasuo Hamanaka, who had narrowly escaped, did not stop. Instead, his actions became more extreme. He destroyed relevant documents, tampered with trading data, and forged important signatures. To facilitate his illegal operations, Yasuo Hamanaka even opened an unauthorized global bank account at Merrill Lynch without Sumitomo Corporation’s authorization.
3.The truth was revealed
On June 24, 1996, Sumitomo Corporation announced the dismissal of Yasuo Hamanaka and stated that due to his unauthorized copper trading over the past 10 years, the company had suffered a loss of nearly $2.6 billion.
In 1998, Sumitomo Corporation claimed to be “unaware” of Yasuo Hamanaka’s transactions and paid $158 million to US and British government agencies to withdraw their accusations of “manipulating copper prices”.
One year later, Sumitomo Corporation and three other metal trading companies agreed to pay $135 million to compensate investor groups who suffered losses due to Yasuo Hamanaka’s market manipulation.
As for Yasuo Hamanaka, he was sentenced to seven years in prison for illegal trading and attempting to conceal losses of more than $2.6 billion, becoming the most severely punished individual trader in history. Britain and the United States announced a ban on his entry into the market.
This incident brings us a profound warning. The futures market is not a casino. The fundamental driving force that determines market trends is commodity supply and demand. Attempts to manipulate the market and profit from it will eventually be severely punished. At the same time, it also makes people wonder, in the treacherous financial market, who is the real master in this ever-changing situation?
Reproduction Notes：InvestFancy » Yasuo Hamanaka:Battle for LME Copper