The King of Oil: The Secret Lives of Marc Rich

him172 million and took his company to the edge of collapse. It was the deal that finally forced Rich to sell his company. One of Rich’s former managers told me about this debacle when I asked him about the company’s greatest failure. We were sitting in his office, which I will not describe, as he does not want it to be recognized. Before getting into the details, he stood up, shut the door, and asked me to turn off my tape recorder. “Please, don’t get the wrong idea,” he said and lit a cigarette. “I have the greatest respect for Marc Rich. I am what I am thanks to him, but this megalomaniacal deal also belongs in his biography.”
    The trouble started in July 1992. David Rosenberg, a young trader described by colleagues as a gambler, decided he was ready to go for the big time. He had racked up a number of successful aluminum deals over the previous few years and had been promoted to director of thecompany’s metals division. Rosenberg now wanted to attempt what several traders before him had singularly failed to do; he wanted to secretly corner a market in an attempt to manipulate global prices for a metal. He sat down with two of his most important rivals, the German Metallgesellschaft AG and the Spanish Asturiana de Zinc SA.
    Together the three parties bought a long position on zinc on the London Metal Exchange (LME), the world’s largest metals trading exchange. This meant that the three parties had obligated themselves to purchase zinc at a predetermined time and at a predetermined price. Investors who “go long” on a commodity can turn a profit when the prices rise or lose money when prices fall. Rosenberg and his partners simultaneously began buying huge amounts of zinc in an attempt to drive up the market price in the hope of obtaining a higher price for the zinc that they had purchased. It was a gigantic yet incredibly risky operation. Rosenberg and his associates secretly bought around 1 million metric tons of zinc—approximately 20 percent of the annual global production and nearly two-thirds of all the zinc traded on the LME. All told, they spent well over1 billion in their attempt to reduce the global supply of zinc.
The Worst Deal of Rich’s Career
     
    At first everything went according to plan. Within weeks, Rosenberg and his confederates were able to drive prices to a multiyear high. By September 1992 zinc had risen to1,400 per metric ton. “They were buying and buying and making the price go up,” the manager explained. “It was a high-risk, speculative operation.” However, they were unable to keep their secret operation under wraps. The trade press soon began publishing articles detailing the inexplicable rise in zinc prices. As was usually the case when inexplicable things were happening on the market, people began pointing fingers at Marc Rich. This time they were right.
    As it almost always does in attempts to corner a market—whether itbe in silver, aluminum, or tin—the bubble finally burst. The artificially inflated prices were followed by a very real slump. By November 1992 the price of a metric ton of zinc had fallen by 25 percent to1,050. 1 “There was no way out,” remembers one of Rich’s directors who had tried to prevent the worst from happening. “We were that close to a disaster,” he says, holding his forefinger and thumb close together. “We had to liquidate the long position as quickly as possible to limit the losses.” In the end the trader was successful, and his efforts saved the company from ruin. The insane attempt to manipulate the global zinc market ended up costing Marc Rich + Co.172 million. Rosenberg left the company.
    Rich confirmed that the zinc debacle had indeed been the worst deal in his career as a trader. He seems magnanimous about the entire affair today, even though it was one of the reasons he was later forced to sell the company he himself had founded. “The younger people were tempted and didn’t have the experience,” he says. He does not, however, interpret the devastating failure as proof of the impossibility of cornering a market. “I wouldn’t say it is impossible, but I would not try to do it,” he tells me. “The risks are too big.” Not only did Rich lose a lot of money, but he also came out of the fiasco with his credibility severely damaged. His senior traders with experience in the metals markets had warned him of the adventure. “This is artificial. There is no physical demand. It’s a bubble that will