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Copper Auctions Aim to Bring Down Prices
By Zheng Lifei
China Daily, Beijing
Saturday, November 24, 2005
http://www.chinadaily.com.cn/english/doc/2005-
11/24/content_497397.htm
After two auctions in eight days, China plans to sell another 20,000
tons of copper next Wednesday -- a move that, traders and analysts
say, shows its resolve to bring down the price of the metal.
The State Reserves Bureau (SRB), which manages strategic metals,
announced the upcoming auction yesterday afternoon only hours after
the agency completed its second copper auction in which it failed to
sell all the 20,000 tons it planned.
At the first auction last Wednesday, SRB sold 20,000 tons.
Reacting to the announcement, Shanghai copper futures witnessed the
biggest single-day drop since May.
Copper for January 2006 delivery, the most actively traded, closed
at 35,610 yuan (US$4,407) a ton on the Shanghai Futures Exchange, a
drop of 1,400 yuan (US$173), or nearly 4 percent, from Tuesday's
close.
The auctions were triggered by the misjudgment of trader Liu Qibing
with the National Control Centre, who struck futures deals for the
SRB at his office in Shanghai.
In July and August, Liu took short positions equal to about 130,000
tons of copper at US$3,300 a ton, expecting the price to decline.
But prices kept rising, exposing the government to losses of
hundreds of millions of dollars when the contracts fall due on
December 21.
The government was thus forced to auction more copper to bring down
the price and reduce losses stemming from Liu's short position.
Copper futures on the London Metal Exchange (LME) fell on Tuesday,
spurred by market speculation that the massive short positions built
by Liu were extended to 2006 or 2007.
Yesterday the benchmark LME three-month copper contract was trading
at US$4,049.5 a ton in the morning, slipping US$160 a ton from
Tuesday close on the Shanghai futures market.
"The continued sale shows SRB's resolve to push down copper prices,"
said Wu Zhigang, a veteran futures trader and copper analyst.
"By announcing its third auction, SRB intends to keep the price
momentum downward," said Lei Hongwei, a trader with Beijing CIFCO, a
subsidiary of China International Futures Co. Ltd. (CIFCO).
"SRB hopes to convince the market that it has adequate 'ammunition'
and is resolved to drive down copper prices," said Lei. He predicted
that SRB would continue sales if Shanghai futures bounce back.
In the second auction yesterday, the metal traded between 37,350
yuan (US$4,623) and 37,850 yuan (US$4,684) a ton.
"The auction price was a little bit too high, which resulted in many
failed bids," said Zhu Xinchang, a manager from Ningbo Jintian
Copper Group, China's largest copper processor.
About 6,000 tons were left unsold, said Zhang, who participated in
the auction.
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