Inco Case Study (Background Reading): The End of Monopoly: A New World for Inco (Part 3 of 3)

The Advent of Nickel: From Discovery to Mid-20th Century

Canadian Business History Professor Joe Martin

This reading was prepared by Joe Martin to supplement the class discussion on the Inco case. All charts have been omitted.

Re-incorporation in Canada

In 1928, Inco was re-incorporated in Canada. There were claims that the main motivation behind the re-incorporation was to evade American anti-trust laws. In the 1920s, the American trust-busting movement had gathered momentum and was turning to the Morgan trusts. Inco’s lawyers, Sullivan & Cromwell, are said to have advised on relocation to Canada in order to escape antitrust regulation. Once Inco became a Canadian corporation, it was no longer subject to U.S. jurisdiction. In Canada the U.S. anti-trust laws and the reach of American authorities were not an issue.

At that time Inco established dual headquarters in Toronto and New York City, although New York remained the home of headquarters for top management, marketing and finance.

Another important development occurred at the Company in 1928. For the first time, Inco was included in the newly-expanded Dow Jones Industrial Average, consisting of 30 companies, just thirteen years after (24) the company first listed on the New York Stock Exchange.(25)

On October 1, 1928, the Dow Jones Industrial Average was expanded again to include 30 stocks, and Inco was one of those stocks. Inco, along with such solid companies as Bethlehem Steel, Chrysler and Westinghouse, joined such legendary American corporations as General Motors, Sears Roebuck and Inco’s original parent, US Steel, as part of the select group.

In 1929, Canada stood first in the world, producing 90% of the world’s nickel and 70% of the world’s asbestos. Inco occupied a huge place on the Canadian corporate landscape. Not surprisingly Inco was the largest Canadian-based mining company, with assets of $182 million (more than three times the assets of the next largest, Cominco, which was owned by the CPR.) Inco was also the 11th largest non-financial company in Canada. Although Canadian based, 47% of its equity was U.S. based with another 31% held in the U.K.26

However, although it was not obvious to some of the most astute business observers, trouble was brewing. For example, on Black Thursday, October 24, 1929, the day that Wall Street crashed, James Richardson of Winnipeg, one of the three Canadian directors, wrote a reply to Winston Churchill, whom he had met in the summer. Richardson recommended that Churchill buy Inco stock. He wrote “We have …just gone through a severe panic in the New York stock market and there are all kinds of attractive investments…. I regard International Nickel …as one of the most attractive.” (27) ‘Black Thursday’ was quickly followed by Black Tuesday. The next three years saw major stocks decline by 87% with Inco in the vanguard declining by 94%.

The Fall and Rise of Inco

Between 1929 and 1932, International Nickel’s stock declined by 94.3% (from 72 1/2 to 4 1/8), compared to an average decline of 85.9% among the top 50 Canadian stocks. As the distinguished historian Michael Bliss notes, “Inco suffered harshly in the early years [of the Great Depression] but had a quick recovery, as world rearmament increased the demand for nickel alloy.” (28)

Demand for the company’s product soared, and despite the inevitable abrupt decline after World War II, a sharp rebound in production occurred soon after as the world entered the Cold War era. However, it was not until 1947 that price increases started to match production increases.

There was a sharp increase in demand for nickel in 1933, following the sharp decrease caused by the Great Depression.(29) By 1934 nickel production in Canada was already 40% greater than it had been during the last year of World War 1, and demand was increasing exponentially. Concern arose that European countries were stockpiling nickel for war purposes.

In his examination of the history of Mining, Martin Lynch writes, “The rest of the world had it within their power to prevent, or certainly to retard, the German buildup. Yet ships laden with Canadian nickel…continued to dock at Germany’s Baltic ports.” (30)

In the mid-1930s, an Inco exploration team discovered a rich ore body in the Petsamo district of northern Finland which Inco developed, financed and supervised. By the time the war broke out in 1939, Inco had installed modern mining and smelting facilities. During the war these facilities fell under German and later Russian control.(31)

Inco’s Market Dominance

As has been noted, the 1928 merger of Inco and British based Mond gave the new company virtual control of the Sudbury nickel deposits and worldwide dominance of nickel markets. However, as O.W. Main notes, ‘Inco’s dominance was short-lived. In 1930, Falconbridge Nickel Mines began production of nickel matte to ship to the Kristianssands refinery in Norway.

The company…drew heavily on the staff brought together by British American Nickel and the financial support of New York capitalists.…Inco made no moves to engage [Falconbridge] in a price war or buy it out. …In retrospect, the rise of Falconbridge to the position of a major producer…seems to suggest that Inco’s tolerance may not have been in its own long-term interest.” (32)

International’s weak position in Europe compounded the problem.The Great Depression hit North America far harder than it did Europe.33 As a consequence, International’s sales dropped by 75% at a time when European consumption was showing a modest increase. International’s world market share declined from 92% in 1929 to 60% just three years later,34 as a result of the decrease in North American demand.

The war years were a mixture of good and bad news for International. Mines developed in Finland by International were taken over by the Russians, never to be returned.When Norway was overrun by the Germans, International started refining Falconbridge’s matte. International and Mond, its subsidiary, “refined the total allied production of nickel…with the exception of …nickel mined in Cuba.” (35)

Although the war increased demand, “the war years of the 1940s and the aftermath did leave Inco in a weakened position in the industry….War…and the uneasy peace…made governments clearly aware of the strategic nature of nickel.The support for the discovery of new deposits and the encouragement of new producers weakened the controlling position of Inco. While Inco continued to dominate the industry, its market share had been slowly slipping, and its control of the markets…was being quietly eroded.” (36)

However, it must be stressed that Inco made an enormous contribution to the Allied cause during World War II. The company supplied 95% of all Allied demands for nickel, about 1.5 billion pounds of all forms of nickel — a vital ingredient (not to mention huge quantities of copper and platinum) during wartime. “To win, the Allied armies needed machines — guns, tanks, battleships, and a host of other weaponry that could only be made from hardened nickel-steels and other nickel-alloys.” (37)

Business-Government Relations

During the 1930s, Inco made real efforts to portray itself as a British, Canadian company not only through its purchasing policies (e.g. buying coal from Cape Breton) but also through institutional advertising in order to offset its negative image that had endured from the First World War. The company also made considerable progress during the 1930s in the mining and refining of nickel and copper in Canada through the introduction of improved plants at Copper Cliff, a small town west of Sudbury, and in east Montreal.

Since World War I, government relations had been quiet, since Inco provided employment for many Canadian workers. However with the shift in markets in the 1930s from the peacetime uses of the 1920s to armaments in the 1930s there was an outcry in both the press and in the House of Commons that the government should take control of supply.

The government rejected these pleas, explaining that the increased demand was caused by new uses for nickel. Furthermore, the government contended that if Canada placed a ban on exports suppliers in other countries would fill the void and contribute to the severe unemployment problems facing Canada.(38)

In part to deal with the growing importance of government relations, Inco expanded its ‘scanty organization’ and appointed geographical Vice Presidents for the United Kingdom, Canada and the United States.

After the Second World War broke out, the allocation of nickel came under government control.

In 1943, the newly elected Conservative Government of Ontario appointed a Provincial Royal Commission on Mining. The Commission reported the following year. It recommended that the amount of taxes paid by Inco to the Ontario government under the Mining Tax should be allowed as a deduction under the Federal Income War Tax. This provision would lead the federal government to promulgate regulations, which had no policy rationale and would complicate matters for mining companies.

In addition to dealing with the Canadian and Ontario governments, Inco also had to contend with the American government, including both the Executive and Legislative branches.

In 1946, the U.S. Department of Justice filed suit against Inco’s American subsidiary charging monopolistic practices in violation of the Sherman Act. The Justice Department attempted to have Inco’s rolling mills separated from the parent company. The suit was settled in 1948 with a consent decree allowing the company to maintain its own rolling mills, as long as it supplied other mills at competitive prices.

After the war, there was a modest price reduction to 30.5 cents, and the price was gradually increased to 40 cents a pound in 1948. In mid 1948 prices started to increase so that between the war’s end and mid-1950, the price rose by 60%. That was sufficient to draw the attention of a U.S. Senate Committee chaired by former Congressman, new Senator, and future President Lyndon Baines Johnson.(39)


As the 1940s drew to a close, Inco’s net earnings declined. Between 1948 and 1949, the earnings fell below those of 1947, about on a par with the early war years (Inco was not a profiteer during World War II) and well below the levels achieved in 1937. Fortune magazine was particularly critical of the company’s 1949 annual report. The magazine stated that, based on its analysis, “foreseeing the trend of world affairs is not part of Inco’s business.” (40)

The point Fortune was making was that there was a distressingly tight supply of nickel and a big part of the problem was that Inco was a monopoly. And, while it had its executive offices in New York it was incorporated as a Canadian company and consequently was beyond the reach of the Sherman Antitrust Act. In Fortune’s eyes, Inco was an unregulated monopoly that could do just about anything it pleased because it was a large U.S. dollar accumulator for the Canadian government.

More specifically, Fortune expressed concern with the huge nickel demands required as the result of the outbreak of the Korean War in 1950. It was also concerned that although the Nazis could not reach the Sudbury basin in the 1940s, the Communists could in the 1950s. It was this kind of thinking that led the U.S. government to start stockpiling in earnest in the 1960s. Such stockpiling not only lulled Inco into a false sense of security, but it also contributed to the destruction of the company’s
monopoly by subsidizing Inco’s competitors.

(24) September 23, 1915.

(25) The Dow Jones Industrial Average was first established in 1884 and consisted primarily of railway stocks. Twelve years later, in 1896 the Average was converted to Industrials only. Twenty years later in 1916, the year after International had been listed, the Average changed again to a listing of only common stocks and expanded to 20 companies.

(26) Taylor and Baskerville, p. 301.

(27) October 24, 1929 letter from James A. Richardson to the Right Honourable Winston Churchill, Richardson Archives, Winnipeg.

(28) P. 421, Northern Enterprise by Michael Bliss, W.

(29) Inco’s problems were aggravated by the Tariff wars between the United States and Canada of the early 1930s.

(30) p. 286, Mining in World History by Martin Lynch.

(31) This Inco developed property is now owned by the big Russian nickel company Norilsk, formerly a state monopoly called Glavnikelkobalt. It was ‘sold’ to the Russian government for US$20 million in 1944. Norilsk is now the major competitor to Inco and has significantly reduced Inco’s world market share.

(32) pp. 260, 261 “International Nickel: The First Fifty Years” by O.W. Main in Canadian Business History edited by David S. Macmillan – Main suggests three reasons for Inco’s behaviour: ( 1) a price war would have meant large losses at a bad time; (2) they thought Falconbridge would not survive; and (3) concern about being called ‘foreign monopolists’.

(33) GDP/capita declined by over 30% in North America whereas in Europe while the decline was 17% in Germany it was 10% in France and less than 5% in the UK.

(34) P. 111, The Canadian Nickel Industry by O.W. Main.

(35) p. 121, Ibid.

(36) p. 261, Canadian Business History, op. cit.

(37) “Mining for Victory” by Stan Sudol, National Post, August 25, 2005.

(38) p. 118, Ibid.

(39) p. 93, “The Squeeze on Nickel” Nov. 1950, Fortune.

(40) p. 196, Ibid. The magazine was particularly critical of future leadership – Dr. John Thompson – when it wrote “Inco management could be Joe Louis – but there is no Ezard Charles on the scene.” Charles had become the world heavyweight champion in 1949.