Chinese metals officials could be seeking approval to export up to 200,000 tonnes of copper, traders said on Wednesday, in a bid to force down prices and recover losses on the London Metal Exchange.
The officials of China's State Reserves Bureau (SRB), which manages strategic metals, are seeking permission for the exports from the State Council, China's cabinet, the traders said. "We will have to see whether this is another bluff or whether they will deliver," UBS analyst Robin Bhar said. Prices of copper, used in building and plumbing, have sped to historic highs this week as speculators have bet the bureau will be forced to cover a gamble worth hundreds of millions of dollars that prices would fall.
News of the exports at first sent LME copper futures tumbling $87, or over two percent. Prices then rebounded to $4,103 a tonne in open outcry trade - still below their historic high of $4,174 a tonne hit on Tuesday. The bureau is at the centre of a market furore over speculation that a trader who worked on its behalf has taken a short position of 150,000-200,000 tonnes - just as copper was marching to new highs.
China is the world's largest copper consumer. It is not clear whether the proposed exports will be used for delivery to cover the rumoured position. If China took its short position last spring, as traders believe, it could translate into losses of $200 million.
"It remains to be seen whether the markets treat today's SRB's export offer with the same degree of scepticism that first greeted the overall size of the SRB sales," Man Financial analyst Edward Meir said, referring to earlier comments by the bureau that it could sell up to 500,000 tonnes of copper. "Today's action suggests that markets are taking a bit more notice this time around."
Traders believe the SRB is making staunch efforts to dampen markets with futures sales and spot auctions as a desperate attempt to unwind the short position on the LME. They believe the position was taken by Liu Qibing, who had handled the bureau's trades on the LME before he disappeared a few weeks ago.
Officials have told Reuters he is on leave and if he has a short position he was acting on his own, adding to uncertainty over whether the bureau would recognise the obligations. The SRB answers only to the State Council, and an official from the country's chief securities watchdog said the regulator had no authority to supervise the bureau's actions.
Funds and bullish brokers had greeted each of the SRB's previous announcements that it was prepared to sell from its 1.3 million tonnes of reserves by pushing LME prices higher. "With no informed news forthcoming the market remains very confused and could shoot off in either direction," analyst William Adams of BaseMetals.com said.
On Wednesday, the bureau held its first public copper auction, selling 20,000 tonnes. Later, the bureau announced it would auction another 20,000 tonnes on November 23. It has sold about 40,000 tonnes this month through the Shanghai market.
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