Copper Rises to a Record on Speculation China May Default


Nov. 18 (Bloomberg) -- Copper rose to a record in London on speculation the Chinese government doesn't have enough of the metal to cover trading commitments next month.

As much as 200,000 metric tons of copper must be delivered because of positions amassed by Liu Qibing, a trader for an affiliate of the National Development and Reform Commission, the state-run China Daily said yesterday, citing an unidentified official. There are about 140,000 tons of copper in global publicly reported stockpiles.

``It's physically impossible to deliver that metal anywhere,'' Angus Macmillan, an analyst at Prudential Bache in London, said in an interview. China's government ``has basically increased nervousness in a market that was already nervous.''

Copper for delivery in three months on the London Metal Exchange rose $50, or 1.2 percent, to $4,195 a ton as of 11:21 a.m. local time. It earlier reached $4,204, $19 higher than yesterday's record. Copper is heading for its fifth consecutive weekly increase.

China's obligations for copper deliveries are ``infinitely higher than the stock that exists'' in exchange-approved warehouses, said Mark Topfer, the former No. 2 lawyer at the LME, in an interview yesterday. Topfer, who works in Norton Rose's financial markets division in London, was the LME's deputy general counsel until last year, advising brokers and customers.

Inventory of 141,852 tons, equal to about three days of global usage, is stored in warehouses monitored by the LME and commodity exchanges in New York and Shanghai, according to data compiled by Bloomberg.

`Personal Actions'

Liu built up so-called short positions, betting copper prices would fall, China Daily reported, citing an unnamed official at government stockpile agency the State Reserve Bureau.

``As far as I know, the loss was a result of his personal actions, instead of the government,'' China Daily cited the official as saying.

The National Control Center for Supplies Reserve under the State Reserve Bureau, where Liu used to work, declined to comment today when contacted by Bloomberg. Liu's cell phone was not picked up when contacted by Bloomberg.

Liu hasn't been at work since last month, two people at companies that traded with him told Bloomberg Nov. 15, declining to be identified. He hasn't answered e-mails or calls to his cell and landline phones.

`Eight Brokers'

The LME, the world's biggest metals exchange, may employ its special committee to settle a dispute between China and as many as eight brokers who have done business with Liu if the State Reserve Bureau, or SRB, reneges on the positions, Topfer said.

Adam Robinson, an LME spokesman based in London, declined to comment yesterday. Calls to the SRB spokesman in Beijing were not answered today.

By building a short position, a speculator enters a contract pledging to deliver a commodity by a specific date at a preset price. The bet is that prices will fall so that delivery can be made with supplies that are cheaper than when the contract was sold.

Liu isn't registered with the U.K.'s Financial Services Authority in London, which regulates the LME, FSA spokesman David Cliffe said yesterday.

China may incur losses of as much as $300 million, Wang Zheng, a trader at Shanghai Dalu Futures Co., said in a telephone interview from Shanghai yesterday.

Production Shortfall

Copper has more than doubled in value since 2003, as production fails to meet demand. The shortfall in output this year will be 343,000 tons, Standard Bank in London forecast in a Nov. 1 report.

China has been selling copper to ease prices. The SRB plans to sell 20,000 tons on Nov. 23, the National Development and Reform Commission said Nov. 16. It sold the same amount on the day of the announcement.

The SRB may be selling copper to roll over some of its contracts that are scheduled for delivery in December, Wang said. A rollover is when a position is closed and replaced with a similar one for a date further ahead.

``The key is whether the state can really deliver on the 200,000-ton position in London,'' said Yuan Fang, a trader at Shanghai Dongya Futures Co., in a telephone interview yesterday.

Speculation that the SRB may get government approval to export 200,000 tons of copper to meet the obligations has circulated in the Shanghai market, the China Daily said today. The SRB has declined to comment.

`Mr. Copper'

Prices for copper may rise another 9 percent this year, before falling in 2006, as China is forced to make good on the bets, said David Threlkeld, the first man to publicly allege in 1991 that a Sumitomo Corp. trader was cornering the copper market.

The metal's rally in the past 12 months has echoes of the Sumitomo scandal, when trader Yasuo Hamanaka, known as ``Mr. Copper,'' hoarded metal, sending copper up 69 percent in a year, said Threlkeld, president of Resolved Inc. in Scottsdale, Arizona.

Liu's current whereabouts are unknown. Liu, 40, may be at home in Shanghai on leave, the Australian Financial Review said, without citing anyone.

China to lose US$100 mil. in copper bet


2005/11/18
HONG KONG, AFP



China stands to lose at least US$100 million on the London Metal Exchange after a bet by a state commodities trader went spectacularly wrong, a press report said Thursday.
Citing a source close to China's State Reserve Bureau (SRB), the South China Morning Post reported that SRB copper futures trader Liu Qibing took short positions equal to about 130,000 metric ton of copper in July and August. At the time, Liu paid about US$3,300 a ton, expecting the price of copper to decline. Copper prices for delivery in three months' time are now about US$4,119 a ton, the paper said.

"Liu disappeared from the market in early October and that week the bureau recovered about 50,000 tons of short positions on the London Metal Exchange, which pushed prices up to about US$3,800 a ton," the source said.

"He has been singled out by the bureau as a scapegoat, but he was only acting according to bureau regulations and procedures."

Copper prices have soared this year, rising more than 30 percent, and on Monday they hit a record high of US$4,132 per ton.

Other reports say Liu may have acquired positions of up to 600,000 tons of copper and losses could be much higher when contracts expire on December 21.

"The market's got the bit between the teeth now and what the Chinese will be realizing is that London likes nothing better than kicking someone when they're down," the report quoted Alastair Clayton, executive chairman of London-listed copper developer South China Resources as saying.

Liu has also won comparisons with Yasuo Hamanaka, a Japanese trader who lost US$2.6 billion for Sumitomo Corporation in 1996 and the mainland's Singapore-listed China Aviation Oil which recently went under after losing US$550 million through derivatives trades that turned sour.

The newspaper said Liu, who is in his 40s and who has been a metals trader for more than 10 years, is on a leave of absence from the bureau. He is believed to be at home in Shanghai.

China, a huge consumer of copper, has in recent weeks tried to cool the price by drawing down some of its stocks.

Beijing expected to ramp up copper sales to cover losses


(LONDON) China's government may sell another US$400 million of stockpiled copper to drive down prices and raise funds to cover investment losses by one of its traders.

The State Reserve Bureau in Beijing may sell 100,000 tonnes of the metal from its inventories at weekly auctions through the middle of December, said traders including Wang Zheng at Shanghai Dalu Futures Co.

The bureau plans to sell 20,000 tonnes on Nov 23, the National Development and Reform Commission, the top planning agency, said. It sold the same amount on Wednesday.

'By selling copper, they can get the money they need to resolve the losses and keep the price down,' said Wang in Shanghai. 'The next two weeks will be pretty critical.'

The sales on Wednesday failed to prevent copper rising to a record, taking its gain this year to 31 per cent.

Liu Qibing, deputy head of imports and exports at China's bureau, made trading bets that copper would decline, the Wall Street Journal said on Monday. Mr Liu built short positions on copper, meaning he sold metal he didn't own in the hope of buying it back later at a cheaper price.

The bureau, the country's stockpiling agency, has already sold more than US$240 million of copper this month as part of efforts to ease a shortage on domestic markets. China is the world's largest copper consumer.

The losses from Mr Liu's trades may reach hundreds of millions of dollars, said Mr Wang. 'Most probably they will deliver against some contracts and roll others over into next year,' he said.

Mr Liu hasn't been at work since last month, two people at companies that traded with him told Bloomberg, declining to be identified. He didn't answer e-mails or calls to his mobile and landline phones from Bloomberg. Bai Jing, a spokesman for the SRB in Beijing, declined to comment.

The SRB sold 40,000 tonnes of copper last week on the Shanghai Futures Exchange for delivery in January or February. 'Once they start selling, they may not find it easy to stop,' said Zhang Ronghui, copper analyst at China Minmetals Nonferrous Metals Corp.

The bureau may be the second Chinese state-owned organisation to get into trouble. In November last year, China Aviation Oil (Singapore) Corp sought protection from creditors after it ran up US$555 million of debt from trading oil derivatives. The company bet prices would fall. They have risen to records.

The stockpiling agency has several ways to resolve the wrong bets, according to analyst Li Yusheng from Antaike, a government organisation. It can deliver the copper against the contracts in December, from its reserves or by borrowing the commodity; or it can roll over the deliveries into a range of months next year.

The agency has 1.3 million tonnes of stockpiled copper, Reuters cited an official from the bureau as saying on Nov 11. 'The people who believe that are rather few,' said Ren Yunhe, analyst at Shanghai Shenyin Wanguo Research and Consulting Co, yesterday. 'It's a rather large amount.'

The bureau may negotiate with investors holding the long positions, or those who bought copper for future delivery in the hope prices would rise.

'The brokers involved, or another, might act for the party on the short side and seek the longs,' said Dominic Mound, director of base metals in Asia-Pacific for ABN Amro Holding NV, from Sydney.

Some analysts said China may not deliver enough metal to cool copper prices, prompting traders to believe prices will rise further as the SRB buys copper to cover its short positions.

Prices for copper may rise another 9 per cent this year, before falling in 2006, as China is forced to make good on the bets, said David Threlkeld, the first man to publicly allege in 1991 that a Sumitomo Corp trader was cornering the copper market.

The metal's 37 per cent rally in the past 12 months has echoes of the Sumitomo scandal, when trader Yasuo Hamanaka hoarded metal, sending copper up 69 per cent in a year, said Mr Threlkeld, president of Resolved Inc in Scottsdale, Arizona.

Hamanaka admitted in 1996 to unauthorised copper trades that lost the Japanese company US$2.6 billion. He was jailed.

Another copper trader imprisoned for bets that turned sour was Juan Pablo Davila at Chile's Codelco, the world's No 1 copper producer, who was caught taking kickbacks from brokers who handled his losing trades. He was jailed for eight years after running up losses of more than US$100 million.

Copper prices this year have risen more than other metals on the LME such as aluminium and nickel, as demand exceeds output.

Standard Bank Group Ltd, a South African bank that trades on the LME, said in a Nov 1 report that the production shortfall in 2005 will be 343,000 tonnes. Next year, higher mine output will result in a production surplus of 263,000 tonnes. - Bloomberg