Abstract: Futures Markets as Trustbusters: The Secretan Copper Corner and the London Metal Exchange, 1887-89

Nathan Delaney

Abstract

The business history of the late nineteenth century was to a large extent characterized by attempts at monopolistic combination in both the US and Europe. As historians know, cartels, trusts, and syndicates proved to be tempting alternatives to the price wars and volatile commodity markets that developed in the wake of the Depression of 1873. One particularly vivid example occurred when a group of producers and financiers attempted to corner the copper market from 1887-1889. This phenomenon came to be known as the Secrétan Syndicate.

After years of overproduction, large shareholders of copper companies began clamoring for a collective solution in order to arrest declining copper prices and company profits. In 1887, a plan was devised by Pierre Secrétan, owner of the largest copper fabricator in Europe, who recruited a group of 16 European investors to help buy up the world’s visible supply of copper. From November 1887 through September 1888, Secrétan’s Société des Métaux came to control 80 percent of the world’s copper supply, effectively cornering the global market. In the process, the syndicate sent copper prices on the London Metal Exchange soaring from £40 per ton to £106.

The Paris scheme’s success, however, proved to be fleeting. Obstinate LME traders sold short 3-month copper futures, betting that the newly inflated prices would signal for new sources of supply. The bear’s risky wager soon paid off as red metal poured into London from around the world, satisfying both the traders’ maturing “short” bets while simultaneously breaking the Syndicate’s monopoly.

While historians of capitalism have often interpreted financial institutions (like the LME) as little more than dens of greed and speculation—enriching middlemen at the expense of honest producers—the story of the Secrétan Syndicate shows how futures markets can, in some circumstances, unsettle monopolistic market arrangements. In this case, speculators managed to enrich both themselves and the consuming public at the expense of producers.