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Shanghai copper futures fell yesterday following a government copper auction and news that another one will be held next Wednesday.

But prices of the metal on the London Metal Exchange (LME) reached fresh highs as the market bet on how the central government would deal with large short positions taken by its  copper futures trader Liu Qibing.

Mr Liu was removed from his job with the trading division of the State Reserves Bureau early last month after making large bets on the LME that the price of copper would fall from what was then a very high US$3,200 a tonne. The LME price of copper for delivery in three months rose to a  record  US$4,185 a tonne yesterday.

'Prices are going to remain at all-time high levels until the middle of December when these short positions are due to expire,' said John Meyer,  a mining analyst at  Numis Securities.

In an attempt to  drive down prices so it can limit its losses, the bureau  auctioned 20,000  tonnes of copper on Wednesday  and announced it would auction another 20,000 tonnes on November 23.

Over the past three weeks, the  bureau has released 52,000  tonnes to the Shanghai Futures Exchange, with 25,000 tonnes set for delivery to the market on December 15 and a further 27,000 tonnes due for delivery on January 15.

As for the short position on the LME of about 130,000  tonnes, the  bureau made a delivery to LME warehouses of 9,000  tonnes two weeks ago and is preparing to deliver  20,000  tonnes or so before the short positions expire in the middle of next month,  sources say.

'That leaves them 100,000  tonnes short,'  a source said.

Mr Meyer said the world would be 'watching to see whether the government honours these contracts or tries to default by pinning them on a rogue trader'.



London copper traders on strict China watch