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Fiasco exposes Chinese stockpileBy Simon Casey and Xiao Yu Bloomberg News MONDAY, NOVEMBER 21, 2005 BEIJING China is disclosing its holdings of copper for the first time, as the nation seeks to limit losses from a trader's wrong-way bet on a drop in prices. The State Reserve Bureau, the country's metal stockpiling agency, said on its Web site on Nov. 9 that it would sell 20,000 tons of copper. A week later, it announced another sale of the same amount. The statements, unprecedented for the bureau, have failed to damp speculation that China cannot meet its copper commitments, and prices climbed to records in London and New York last week. The reserve bureau may have to deliver as much as 200,000 metric tons of copper because of positions amassed by the trader, Liu Qibing, the state-run China Daily said Thursday. That is about 60,000 tons more than is publicly reported worldwide. "They used to be low-key, and now they have suddenly become high-profile," Li Yusheng, head of the copper department at Beijing Antaike Information Development, a government research affiliate in Beijing, said in an interview on Thursday. "It has become a government issue." By announcing sales, China may be seeking to ease investor concern about inventories and to drive down prices to limit losses from Liu's trades, analysts said. The reserve bureau has 1.3 million tons of stockpiled copper, Reuters cited an official from the agency as saying on Nov. 11, about one million tons more than most estimates. "We take the 1.3 million tons stock figure very seriously now that the political hierarchy of the Chinese government is involved," said Maqsood Ahmed, a London-based analyst at Calyon Global Trading, which trades on the floor of the London Metal Exchange. China has sought to distance itself from Liu's trades. The losses are the result of "personal actions" and not those of the government, the China Daily said Thursday. The losses may be as much as $300 million, according to Wang Zheng, a trader at Shanghai Dalu Futures. "To come out and try and portray a story that they are not responsible is completely ridiculous," said Michael Guido, director of hedge-fund marketing and commodity strategy at Société Générale in New York. "When it comes down to the deadline somebody has to pay. They are trying to talk this thing down." The State Reserve Bureau, based in Beijing, may be the second Chinese state-owned organization to get into trouble in a year. In November last year, China Aviation Oil (Singapore) sought protection from creditors after it ran up $555 million of debt from trading oil derivatives. The company bet that prices would fall, but they rose to a record. During visits by Bloomberg to the reserve bureau on Wednesday and Thursday, copper users were observed entering auctions for the metal. All those who were asked to comment declined to do so. Copper for three-month delivery rose to a record $4,243 a ton last week in London. The metal for December delivery rose to $1.9485 a pound on the Comex division of the New York Mercantile Exchange, also an all-time high. A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. Liu has been on leave from his job since October, people who know him told Bloomberg News last week. They spoke on condition that they not be identified. Liu built up so-called short positions, betting that copper prices would fall, China Daily reported, meaning that he entered a contract pledging to deliver copper at a later date at a set price. His bet was that as prices fell, he would buy the copper back when it was cheaper and pocket the difference. Copper has gained 34 percent this year, after rising 37 percent last year. Liu worked as the deputy chief of the import and export division of the State Regulation Center of Supplies Reserve, a government agency that traded metal for the reserve bureau. The trader, who speaks English and sometimes attended industry conferences, is known to brokers at the London Metals Exchange, who say they competed for his business. In 2002, when copper traded at an average $1,604 a ton, he bought the metal, selling it two years later, when it averaged $2,788 a ton, Robin Bhar, an analyst in London at UBS, which trades on the exchange, said in an interview Thursday. He made a "handsome" profit, Bhar said. "He's the type of guy that was pursued by a lot of brokers in London," Michael Overlander, chief executive at Sucden (U.K.), a London-based commodities broker, said in an interview. "He was a good client to go after." The State Reserve Bureau is not the only government stockpile. Its U.S. equivalent is the Defense Logistics Agency in Fort Belvoir, Virginia, which regularly auctions metals including zinc and tin. It has no copper left to sell. The Chinese bureau last made "big" deliveries of metal in 1997 when it helped Zhuzhou Zinc Smelter, a zinc producer based in Hunan Province, recover losses that resulted from building a short position. "They have had their hand forced" again, said Bhar. "They have had to come out and disassociate themselves from what is a calamity." Open community websites http://www.business-business.biz http://www.investment-investment.us http://www.retirement-retirement.com Recommended sites To design your custom retirement plan. http://www.retirement-plan.us For planning an IRA rollover this is the site to review. http://www.ira-rollover.us For professional asset allocation and the wonders it can do. http://www.asset-allocation.us Managers selected to fit your needs. http://www.money-managers.us |
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