UPDATE 2 - China copper trade woes send prices to new peaks Friday 18 November 2005, 5:46am EST - By Clare Black
LONDON, Nov 18 (Reuters) - Copper prices hit a record high of $4,200 a tonne on Friday as investors gambled China cannot get enough metal to cover a trading position that might expose it to losses of $200 million.
Traders believe a looming December delivery deadline on contracts to supply between 150,000 and 200,000 tonnes of copper placed by a Chinese trader will be impossible to meet. The trader has since vanished.
"The Chinese have just added to the nervousness of a market that was already nervous. This market is flying on vapour now," Angus MacMillan, metals strategist with Bache Financial said.
Copper futures hit new all-time highs $4,200 a tonne in early trade. Prices are now up by 33 percent since the end of last year. Extreme volatility was expected to continue.
The short positions are believed to have been placed by Liu Qibing, who was supposed to have been trading on behalf of the State Reserves Bureau.
MISSING TRADER
Market players are keen to know Liu's whereabouts and there was some talk in the market that he would return to work next week. He is on staff at the State Regulation Centre of Supplies Reserve, which is a unit of the National Development and Reform Commission, the bureau's administrator.
Officials for the centre and the bureau have told Reuters that any short positions were made on his own authority, which has raised fears China will let the contracts default, leaving other traders facing huge losses.
Traders said Liu started to make bets as early as last year on a belief copper prices would fall. But the red metal soared to successive peaks as an ever wider array of investors scuffled to jump on the China demand bandwagon.
Market sources said the centre might have been aware of the short positions in April this year and may have given Liu six months to settle them. He has not contacted his business counterparts since early October.
It has not been disclosed just how much copper is at stake but the market bets could total more than twice what is held in the warehouses of the London Metal Exchange.
CHINA EXPORTS?
This week, traders said the bureau was seeking to export from China up to 200,000 tonnes of copper, which could be used to cover the short positions on the LME. Futures dealers in Shanghai said the retreat by copper on Friday indicated that investors believed the state body would export the copper.
But on the LME, the world's premier metals market with turnover in excess of $3 trillion, dealers remain to be convinced that China can supply the copper.
Industry sources said logistically it was unlikely that significant tonnages could be shipped from China in time to meet deadlines in December.
The LME does not release full details of contracts. The short position in question is widely thought to be falling due around a cluster of dates in December. Some of the contracts could be rolled forward, giving more time for delivery.
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