Copper sale fails to calm a runaway market
By Zheng Lifei (China Daily)
Updated: 2005-11-17 06:19

China's stock-piling agency completed its first public copper auction yesterday and then announced there would be another auction next week.

Analysts say the auctions are aimed at convincing a suspicious market that it has adequate reserves to rein in soaring prices.

The State Reserves Bureau (SRB), citing the need to improve tight domestic supply, auctioned 20,000 tons of copper reserves, and will sell the same amount next Wednesday, says a notice posted on its website.

Yesterday's lots sold at between 38,500 and 38,600 yuan (between US$4,762 and US$4,775) a ton, slightly below the spot sales price of 39,000 yuan (US$4,808) a ton in Shanghai on Wednesday.

The closely-watched auction, which was announced one week ago and in which 52 bidders participated, was an apparent attempt by the SRB to drive down runaway copper prices, which hit an all-time high in London on Tuesday, touching US$4,175 a ton.

On the Shanghai Futures Exchange copper for January delivery closed at 37,440 yuan (US$4,616) a ton yesterday, up 30 yuan (US$3.70) from Tuesday but down 90 yuan (US$11.11) from Monday's close. This shows the market was not rattled by the SRB's latest move.

"The SRB's decision to continue selling its reserves is just a posture (that it is determined to push down copper prices)," said Wang Qianming, a metal industry analyst from CITIC Securities.

"But as long as the market fundamentals (the tight supply) remain unchanged, such a move will do no good," he added.

"The main motive behind the SRB's second auction is to bring down the domestic copper price in the hope that it will in turn drag down prices on the international markets," a senior copper analyst from Antaike Information Development Co Ltd, a Beijing-based metal industry consultancy, told China Daily.

"The market is deeply suspicious of the SRB's capacity to control prices and about the amount of its reserves," said the analyst, who did not want to be named.

The SRB said it has 1.3 million tons of copper reserves which, the unnamed analyst said, is not entirely believed.

"By announcing another auction it intends to dispel such market suspicion," he said.

Days earlier, an SBR official was quoted by the domestic media as saying that his bureau will sell much more of its reserves.

"We (the SRB) will sell substantially more copper reserves than market (watchers) expect," Wang Huimin, director of the reserves adjustment department under the SRB, said in an interview with Securities Times.

Market watchers generally agreed that Wang's bureau would sell around 100,000 tons of coppers.

The SRB's recent moves are being closely watched by the commodity markets both at home and abroad.

Meanwhile, the Wall Street Journal's Asia Edition reported on Monday that a trader on the London Metal Exchange (LME) who worked for the SRB was missing after he built short positions that require delivery of between 100,000 and 200,000 tons of copper by December 21.

A short position occurs when a trader borrows a commodity to sell it, believing the price will drop and therefore can buy it back later at a lower price.

An official from the SRB surnamed Li, when asked by China Daily about the matter denied the reports, said no such thing happened and even if had happened it was not carried out on the SRB's behalf.

(China Daily 11/17/2005 page11)