Shanghai Copper Dealers Tipped to Play It Cool

Shanghai's copper exchange is expected to

react calmly to reportsthat China State Reserves Bu-reau (SRB) plans to export 200, 000 tonnes of copperfrom its stockpile soon todampen prices. The SRB isrunning out of time. On De-cember 21, it will have to de-liver or buy 130,000 tonnesof copper on the open marketbecause of futures contractssigned in July and August byits trader Liu Qibing at about US$3,200 a tonne. Three-month copper on the LondonMetal Exchange (LME)reached a record US$4,220 atonne. At current prices, it willhave to spend about US$830million. When the website ofChina Minmetals publishedthe news of the 200,000-tonneexport, the Shanghai marketbarely moved. The most activefuture rose to RMB37, 430 orUS$4, 620, slightly higherthan the week's closing priceof US$4,220 on the LondonMetal Exchange.

A British delegate to the Second Chinese Copper Con-ference that opens in Shang-hai today said that copperprices were already at almostrecord levels before the newsof Mr Liu's trades broke."Since then, prices have notrocketed or blipped. The mar-ket is resilient." According tothe Economic Observer newspaper, Mr Liu was ques-tioned in mid-October for trad-ing illegally for his ownaccount, under the shuang guiregulation, under which a per-son must make himself avail-able for official investigationat any time. The report couldnot be confirmed.

China's latest debacle inthe market will be a focus ofattention at the two-dayconference, to be attended bytop executives fromMinmetals, the LME, Austra-lia Metal Exchange, Barclays Capital, Sucden and otherleading commodities firms.

SRB will conduct its sec-ond auction, of 20,000 tonnesof copper. In Beijing, a simi-lar auction fetched a price ofRMB37, 850 to RMB38, 750a tonne, slightly higher than in-ternational prices.

For the SRB, this is one ofmany wars which China isfighting over the global pricesof major commodities, includ-ing crude oil, cotton, zinc, ironore, aluminum, rubber andcopper, for which it is the big-gest or one of the biggestimporter.

It blames internationalfunds - popularly known hereas "big crocodiles"-for specu-lating in these commoditiesand using Chinese demand asthe excuse to buy and sell,even when it is only one ofmany factors influencing themarket.

With a war chest of 1.3million tonnes of copper in itswarehouses and national for-eign exchange reserves of US$769 billion, China is con-fident of taking on the hedgeand investment funds and biginvestment banks. Foreignanalysts prefer to back the "bigcrocodiles", saying that muchof the USS 100 billion in com-modities funds is going intocopper and that China lacksthe capital or market guile tobeat the hedge funds.