Controlling the price of a metal

The dream of great wealth to be obtained from control of the international price of a metal or other commodity has ensnared many an adventurer.

It is heady wine and is often carried with an obsession that becomes overpowering and displaces common sense and other virtues. Many of those who have attempted it with copper, silver, etc. believed they were staying within the law, but international law, where more than one country is involved in a dispute, is a slippery animal and difficult to enforce, as many have found to their cost. Let us look at one fascinating example of cornering the market.

In the period just before the First World War, Chunilal Suraya, chairman of the India Specie Bank, set up an elaborate arrangement to corner the international silver market. He succeeded in accumulating more than 800 tonnes of silver, the equivalent of about 20% of the world’s mine production of silver at the time.

Suraya was successful in buying all of the available silver in the world market. So, when the India Office in London, the purchasing agent of the Indian government (for whom Mocatta of London, founded in 1685, was the buyer), needed silver to coin money (silver rupees), it had to buy it from Suraya at his price. (Most high denomination coins in the world then were made of silver alloy, but today the price of silver is too high for the metal to be used for general circulation coins.) Unhappy client

Year after year he sold his silver at a handsome profit to the India Office. Somewhat miffed, the India Office eventually bought silver secretly through Mocatta for a year and did not need to buy it from Suraya.

However, Suraya had counted on the India Office as a customer again. When it did not buy, he went bankrupt in 1913 and committed suicide.

To take the 800 tonnes off the market, because such a large quantity might cause a price collapse if dumped carelessly, the leading London bullion dealers formed a syndicate to buy all of it and dispose of it quietly. The Indian government bought 5.5 million pounds sterling’s worth of silver. So ended the grand attempt.

In our own day, we have witnessed the attempt (in 1979-80) to corner the silver price by a Texas billionaire and his Brazilian and Saudi colleagues. The move failed and has since been a contributing factor in the drasti c fall in the value of his over-all assets.

There have been fine examples, however, of benevolent control of the price of a metal. For many years Inco mined 80% of the world’s nickel in Ontario. Although it was in business to make a profit, the company had developed a far- sighted policy on pricing. The policy had two facets. New uses developed

First, from the post-First World War years on, Inco spent much money on development to create new uses for nickel and to promote them to industry worldwide. It still does. The company’s most exciting successes were improved stainless steels, which are now made in huge amounts for countless uses. The other glamorous item was the development of high temperature creep-resistant nickel alloys at Inco’s U.K. laboratory, which made the jet engine, an indispensable part of our world air transportation scene, possible.

The other facet was the continuous holding of the nickel price at reasonable levels so as to attract the greatest number of end-uses for the metal. Yes, Inco raised the price after each round of technical and labor costs, but never exorbitantly. The company often lowered the price, too. Naturally, it was accused of price excesses but numerous investigations by U.S. authorities and governments all found the same thing. It was a price policy that was good for industry in all countries and definitely beneficial to the advancement of civilization.

That Canadian way is not a bad model to follow. T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, served as director of mineral resources with the Ontario Ministry of Natural Resources prior to his retirement in 1986. This column is the fourth in a series on “How metal prices are made.”