When somebody tries to manipulate the market by illegally hoarding a particular commodity, it means that he is trying to ‘corner the market’. In this process, the buyer tries to stockpile the maximum amount of that commodity available, to create an artificial shortage and drive up the price before selling the commodity back into the market.
The attempt by the buyer to corner the market depends a lot on his financial strength and knowledge about market trends. Apart from legal problems, he might also find himself in a mess if his intentions are exposed. He will then have other traders trying to oppose his move and make it difficult for him to sell back the commodity at the high price that he would have hoped to get. In some cases, other traders might actually benefit from the buyer’s mistake.
One of the early examples was the cornering of the silver market in the 1970’s where two brothers, William Herbert Hunt and Nelson Bunker tried to corner the silver market by buying silver in huge quantities. They managed to buy around 200 million ounces, which at that time was about half the world’s silver, before being check mated. They had managed to raise the price of silver from 2 dollars per ounce to 54 dollars per ounce. They were forced to sell the silver back into the market at a substantial loss in the 1980’s and eventually went bankrupt.
One more example of cornering was the conviction and 8 year sentence for Hamanaka, who tried to corner the Copper market in 1996, which resulted in the loss of 1.8 billion dollars to Sumitomo Corporation. Some large corporations have run into trouble with trying to corner the market. BP was ordered to pay a fine of over 300 million dollars in exchange for dropping the civil suit and criminal investigation against it for illegally trying to corner the U.S. Propane market in February 2004 and previously in April 2003. Unfortunately for BP, it got cornered by the CFTC and The Department of Justice.
Cornering the market is similar to buying stocks or shares of a particular corporation with the sole intent of raising the prices of those stocks artificially, before selling them off to make a huge profit. According to the U.S. Government Statute, no person can attempt to manipulate the price of any commodity or the commodity futures market. If the person is found guilty, he may be imprisoned or force to pay monetary damages. Cornering the market was widespread in the 1900’s when there were hardly any regulations in place, but now with the CFTC keeping a watchful eye it has become very difficult for traders to engage in such malpractices. Also, with the advent of computerization, it is very easy for traders and authorities alike to keep an eye on the prices of all commodities. The markets also have circuit breakers in place, i.e. if the price of any commodity fluctuates beyond set price parameters or if there is a high fluctuation in the price of any commodity as compared to the previous day’s price, then trading in that commodity is immediately suspended, till the cause of the fluctuation is found out. Even though cornering is illegal, there will always be someone trying to grab a major chunk of the commodities market with the hopes of increasing their return.