China copper sale sees few takers
Bureau disposes of only about 3,700 tonnes as the high price puts off traders
The mainland's State Reserve Bureau sold less than 20 per cent of the copper it put up for public auction yesterday.
The planned sale of 20,000 tonnes of copper was the fourth in three weeks and was largely ignored by global markets and shunned by local manufacturers.
'They only sold about 3,700 tonnes because the price was too high,' Guangdong Yingyi Metal Products Corp vice-chairman Yang Linzhang said.
The price range of 38,750 to 39,050 yuan per tonne was the highest asking price of all the auctions so far and well above yesterday's closing price of 38,720 yuan per tonne for the Shanghai Futures Exchange's benchmark three-month copper futures contract.
'The Chinese are trying to profit from physical copper sales to raise cash to cover their short positions, and at the same time they are hoping they will be able to drive prices down by introducing so much copper into the market,' Numis Securities analyst John Meyer said.
The bureau is trying to depress copper prices because of short positions of about 180,000 tonnes racked up by metals trader Liu Qibing.
The price of copper has continued to rise since Mr Liu was removed from his position and so far 50,000 tonnes of contracts were recovered from the market by the bureau in the first week of October.
According to sources, the government's plan is to deliver 30,000 tonnes of the physical copper covered by the recovered contracts, buy back 20,000 tonnes and roll over the remaining 80,000 tonnes worth of contracts until next year.
Despite the moves, losses could be much larger than the value of the contracts, however, because of the way margin calls on the short positions may have been financed.
As well as raising money it will need to buy back and roll over contracts, the bureau's auctions may be an attempt to highlight the lack of physical demand for copper at current prices.
'The futures market will eventually have to follow the physical market, but right now it is holding steady until most of China's short positions fall due,' Mr Meyer said. 'If they roll a lot of contracts over, the market will probably hold against them until the new contracts come due.'
Global oil and metal markets have been thrown into turmoil by a 10-fold increase in international funds dedicated to investing in commodities since 2002.
There is now more than US$100 billion in such funds, an estimated US$70 billion of which was raised by American investment banks Goldman Sachs and Morgan Stanley.
Three-month copper futures were trading at about US$4,440 per tonne in London yesterday afternoon.