China has launched a well-advertised plan to sell some of its copper reserves to drive down world prices but analysts are sceptical the country's agency has the reserves or the will to fully carry it out.
China's State Reserves Bureau, or SRB, has been known for keeping its ways a mystery. But suddenly the SRB is making no secret of the fact that it wants to halt copper's rise because of the damage the industrial metal's price is inflicting on the economy.One bureau official told Reuters they might eventually have to sell as much as 500,000 tonnes of copper and he maintained that kind of sale would not be difficult for the government agency. But the SRB, which is responsible for building and managing the stocks for the world's largest consumer of copper, has been unable to convince the market bulls that it is serious.
"They are trying to scare prices lower by talking about delivering material rather than actually dumping it all on the market because in the future they may have to buy it all back," a London-based physical trader said.
World copper prices, on a meteoric rise this year, have fallen only 0.4 percent in the past two weeks and are still hovering just under $4,000 a tonne. China's copper prices have dropped less than 2 percent.
"There have not been much impact on the markets because the SRB has not done much," Zhang Xuefeng, futures chief for Luoyang Copper said.
Analysts and industry officials in China believe the SRB's reserves are not as huge as some of their officials claim, perhaps amounting to less than 200,000 tonnes. "These guys have not had more than 200,000 tonnes in stocks in the last five years," said a London-based broker.
Yang Jun, analyst for Dalian Northern Futures, said the SRB probably has to sell 300,000 tonnes of copper if it really wants to turn around the market. So far, the SRB has mobilised about 60,000 tonnes of copper and plans to auction another 20,000 tonnes of spot copper from its state reserves on November 16 in Beijing.
On one level, the SRB is believed to want lower copper prices because the metal is such a basic building block for its roaring economy. And companies have been complaining about high prices.
But there has been much market speculation that the SRB is holding short positions in Shanghai and on the London Metals Exchange.
Sources in the futures market said the SRB was holding short positions for 40,000 tonnes of copper on the Shanghai Futures Exchange and had shipped 18,000 tonnes of copper to LME warehouses in Asia.
"The view in China is copper prices have been too expensive for long time. Not a year back, they were selling call options on copper all the way through to pick up the big premiums. These options were declared. They ended up having short futures positions."
Market sources have also said the short position on the LME had been handled by a senior SRB trader and there is much talk about his whereabouts. The SRB told Reuters he was on leave.
Previously the hallmark of the SRB was its secrecy. Three years ago the SRB quietly imported about 200,000 tonnes of copper and sold more than that amount in China's spot market in 2003 and 2004.
But this year it is taking a much high profile. The SRB put 20,000 tonnes of copper into Shanghai exchange's warehouses two weeks ago and another 20,000 tonnes last week, which showed a clear intention it was going to sell copper futures, and it did. "Why this time they are telling people before they have done things?" a senior trader said. "They may not have enough copper to deliver against shorts."
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