After two auctions in eight days, China plans to sell another
20,000 tons of copper next Wednesday. Traders and analysts say such
a move shows the government's 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 had planned to.
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 working under?SRB from his Shanghai office.
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 potential
losses of hundreds of millions of dollars when the contracts fall
due on December 21.
The government was thus forced to auction off more copper to
bring down the price and reduce losses stemming from Liu's
gamble.
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 downwards," 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.
(China Daily November 24, 2005)