Copper auctions aim to bring down prices By Zheng Lifei (China Daily) Updated: 2005-11-24 05:40
After two auctions in eight days, China plans to sell another 20,000 tons of
copper next Wednesday a move which, 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 per cent, 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
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 11/24/2005 page1)
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