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London Telegraph: Gold''s burst through $480 sparks covering by big shorts
As gold and silver prices rise,
will the shorts there simply
default too?
* * *
China May Default on Copper Contracts
Amid Shortage, Lawyer Says
By Matthew Craze
Bloomberg News Service
Friday, November 18, 2005
http://quote.bloomberg.com/apps/news?
pid=10000006&sid=a06N6xBoYZ.Q&refer=home
LONDON -- China may default on money-losing copper trades because
the country doesn't have enough of the metal to make good on
delivery commitments next month, said Mark Topfer, the former No. 2
lawyer at the London Metal Exchange.
China's obligations for copper deliveries into exchange-approved
warehouses are "infinitely higher than the stock that exists," said
Topfer, a senior associate director at law firm Norton Rose in
London. He was the exchange's deputy general counsel until last year
and advises LME brokers and customers.
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 top planning agency,
the state-run China Daily said Nov. 17, citing an unidentified
official. There are only about 140,000 tons of copper in global
warehouses, Topfer said.
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 didn't answer e-mails or calls to his mobile and
landline phones that day. A foreign media report that Liu is working
for the State Reserve Bureau is fabricated, the China Daily said,
citing the official.
"They are denying that this person exists," said Topfer, who works
in Norton Rose's financial markets division. "That seems to send the
message that they're not delivering" on their commitments, he said
in a telephone interview yesterday.
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.
The positions are based on so-called short trades, in which 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 authorized to trade with the LME, according to David
Cliffe, a spokesman for the U.K.'s Financial Services Authority in
London, which regulates the exchange.
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.
Copper has more than doubled in value since 2003, as surging demand
for power cables and electrical wire in China expanded by more than
20 percent a year, draining global stockpiles to less than 100,000
tons, or less than three days of global demand.
Official inventories total 140,374 tons at warehouses monitored by
New York's Comex Exchange, the LME and the Shanghai Futures
Exchange.
China has been selling copper to ease prices. Copper touched records
in New York and London yesterday amid speculation the country will
have to return to the market to buy more metal.
"The market is a strange and mysterious thing and China is still
learning," billionaire Robert Friedland, the 32 percent owner of
Ivanhoe Mines Ltd., which holds the Oyu Tolgoi copper and gold
prospect in Mongolia, said by telephone from Beijing
yesterday. "There's a tremendous shortage of copper."
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, Shanghai Dalu's Wang
said. A rollover is when a position is closed and replaced with a
similar one for a date further ahead, the LME says in its
publication, "Managing Metals Price Risk."
Copper for delivery in three months reached an all-time high of
$4,185 a metric ton yesterday on the London Metal Exchange, taking
its gain in the past 12 months to 38 percent.
"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.
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 hoarded metal, sending copper up
69 percent in a year, said Threlkeld, president of Resolved Inc. in
Scottsdale, Arizona.
The SRB, not Liu, is responsible for any losses, said Topfer. "My
sense is that it's the SRB ducking for cover," he said. "You don't
get this short for this long."
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