Copper futures in Shanghai fell yesterday, one day after the country's reserve agency completed its first public copper auction and announced another sale next week.

Copper for delivery in January 2006 closed at 37,140 yuan a ton (US$4,580) yesterday, slipping 290 yuan (US$36) from Wednesday's close, a drop that many analysts say was insignificant and short-lived.

The State Reserve Bureau (SRB), China's stockpiling body, on Wednesday sold 20,000 tons of copper and then announced that it would auction the same amount next Wednesday.

Yesterday's price drop may present the government with some much-needed relief, but analysts said that this trend was unlikely to continue.

"The price drop is temporary, and set to bounce back in the coming days," Lei Hongwei, a trader from Beijing CIFCO, a subsidiary of China International Futures Co. Ltd. (CIFCO), said.

"As long as the copper price is kept at a high level in the international market, the domestic price is unlikely to drop," Lei said.

The copper price touched US$4,102 a ton on the London Metal Exchange (LME) on Wednesday, down from Tuesday's all-time high of US$4,175 a ton.

The copper commodity market was thrown into turmoil recently after the Wall Street Journal reported on Monday that a Chinese copper futures trader had allegedly taken out a massive bet that copper prices were headed for a fall.

It is understood that the trader had promised to sell between 150,000 and 200,000 tons of copper at the end of the year, with the assumption that he could buy it cheaply when it was needed a process known as going "short."

An unnamed source with the SRB told China Daily on Wednesday that the short position was built, but the official denied the trader's links to the SRB.

Rumours that the SRB is attempting to get the government's nod to export 200,000 tons of copper were circulating the market yesterday.

"The copper market is expected to experience big fluctuations over the next few days as market players are watching closely to see how the SRB plays its card," said a copper analyst at Antaike Information Development Co. Ltd., a Beijing-based metal industry consultancy, who wished not to be identified.

"The copper price in the domestic market will continue to rise unless the government takes effective measures, such as releasing more reserves," said Lei Hongwei, a trader at Beijing CIFCO.

But even if the government does that, he said, the copper price is unlikely to fall by a large margin in the long-term if the price in the international market remains high.

(China Daily November 18, 2005)