The phantom copper trader strikes out

By Markets Editor Andrew Van Sickle Nov 23, 2005

Andrew Van Sickle

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Forget supply and demand – the copper market has been gripped by “the mystery of the phantom copper dealer”, says The Times.

The benchmark three-month future contract jumped to a fresh record over $4,100 this week after the disappearance of Chinese trader Liu Qibing. He apparently built up a huge short position of between 100,000-200,000 tonnes of the metal on behalf of the State Reserve Bureau (SRB), which manages China’s strategic commodities reserves: he sold the copper at a fixed price and will have to deliver the metal to the London Metal Exchange to complete the contract.

Since there are doubts about whether the SRB has enough metal in stock to cover their short position, they may be forced to buy it, which, given the tightness of the market, could give prices a hefty boost.

Analysts note that the normally secretive SRB is now insisting that it has 1.3 million tonnes of copper, when previous estimates of Chinese copper holdings have ranged from 200,000-400,000 tonnes. Traders have concluded that the SRB may indeed be short of copper and is trying to talk the market lower to avoid a large trading loss on their short position. According to Robin Bhar of UBS, “if you have a lot of stock to sell, first you sell and then you announce it”.

Moreover, the SRB’s claim that it doesn’t know who Qibing is – even though he was well known in the market – is another reason “the market doesn’t believe them when they say they have got the metal”. He reckons that if the Chinese don’t deliver the copper by the deadline in late December, prices could spike over 20% to $5,000.

Published in Commodities | More articles by Andrew Van Sickle

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