DJ UPDATE:China Confirms Copper Loss, Denies Govt To Blame
BEIJING (Dow Jones)--China admitted for the first time Thursday that a
Chinese copper trader had run up a loss on the London Metal Exchange, but said
the trader was acting on his own and insisted the government wasn't responsible
for the loss.
The official China Daily said Liu Qibing, whom it identified as "the former
import division chief of the National Control Center for the Reserve Bureau",
had built a "massive" short position on the LME - essentially a bet that prices
would fall.
"Initial investigation found that Liu alone should be blamed for the loss,"
the English-language newspaper quoted an unnamed official at the State Reserve
Bureau, which manages the country's copper reserves, as saying.
It appeared to be the first reference by China's state media to an affair
which has rocked the international copper market in recent weeks. The China
Daily is commonly read by people outside the country, so the article is being
seen by many as designed to communicate China's position on the matter to
global markets.
Liu, based in Beijing and once one of the most prominent traders dealing on
behalf of the Chinese government, has disappeared from public view in recent
weeks. The price of LME three-month copper has surged to a record high partly
because the market believes China may have trouble covering the short position.
Although the newspaper described the position as massive, it said the loss
was "several million dollars", considerably smaller than the tens or even
hundreds or millions of dollars about which the copper market has been
speculating.
According to some estimates, assuming Liu built short positions at an average
price of $3,500/ton, at current market prices, that would only result in loss
of $60 million to $120 million, which is not extraordinary in the context of
similar losses reported by other companies in recent months.
In late June, South Korea's Samsung group said it expected a loss of $79
million from activities undertaken by its Hong Kong-based trading unit, which
trades copper among other commodities.
The China Daily report said Liu's short position was of between 100,000 and
200,000 tons of copper, to be delivered to LME warehouses by December 21. But
it appeared these figures weren't derived from official sources, but merely
repeated estimates by London traders.
Report Talks Of Inquiry Into Disputed Trades
While the government so far has denied responsibility for the disputed short
positions, the report suggested a high-level inquiry has been conducted on the
affair.
"As far as I know, the loss was a result of his personal actions, instead of
the government," the SRB official was quoted as saying in the report.
It said the ministerial-level National Development and Reform Commission was
involved in an investigation into Liu's losses, suggesting the affair was
receiving attention at a high level of the Chinese government.
The reference to Liu as a "former" import division chief also implied that
he may have been dismissed, but the newspaper didn't give any further
information on his whereabouts or activities.
The newspaper's insistence that the government wasn't to blame for the loss
could possibly mean China doesn't intend to cover the short position, which
might mean losses for other companies involved in the transaction.
However, a senior analyst at regional securities house in Hong Kong said
China was very likely to cover any position that still existed, because as a
major commodities importer, China wouldn't want to suffer a blow to its
credibility that could end up costing it more in the long run.
Talk Of Likely Exports Against Short Positions Denied
While LME copper prices have steadily risen in the past few days on
speculation on the possible impact if China chooses to cover its short
positions by buying from the open market, some traders have also been
speculating on the possibility of China using state reserves to make deliveries
against open positions
Traders said if China tapped into its own inventories to make physical
delivery of the metal, a 200,000 tons addition to current market supply could
send LME prices down to $3,600 a metric ton from above $4,100/ton currently.
At 0715 GMT, LME third month copper was trading at $4,140/ton.
There have been rumors in the market that SRB has been lobbying China's State
Council for permission to export upto 200,000 tons of copper.
"If this is true, it confirms the SRB has established short positions on the
LME, but so far we have no official announcement about this matter and I don't
think there ever will be," said one Shanghai-based base metals analyst.
When contacted for comment, a State Council official requested the questions
in writing. The questions have been provided, but the Council is yet to
respond.
Wu Shangyi, an official in the Import & Export Department of the State
Regulation Center of Supplies Reserve that handles and manages China's copper
reserves said he hasn't heard of any export plans.
"But we can see whether metal is being shipped out of China in the next few
weeks to LME warehouses in South Korea and Singapore. Whether their inventories
increase or not would be a good indicator," the Shanghai-based trader said.
Chinese traders said it is still unclear if China would choose to export
copper, but if it did, it is logistically possible for China to get copper into
LME warehouses before the speculated Dec. 21 deadline, as it would take little
over a week to ship copper to Singapore or Korea. |
