Speculation over China's exposure to an alleged multimillion "rogue" copper trade by a government employee rose yesterday after it embarked on a major sale of its stockpile.
State Reserve Bureau (SRB) sold 20,000 tonnes of the base metal, cashing in on a 30 per cent surge in the price so far this year. It said it would auction a further 20,000 tonnes next week.
The SRB has sold more than $240m (£140m) of copper this month as part of its efforts to ease a shortage on domestic markets and ease price pressure. A report that China could be planning to offload a total of 200,000 tonnes sent the price below $4,100 a tonne after hitting a record $4,174 on Tuesday.
The move comes two days after it emerged that Liu Qibing, the deputy head of imports and exports at the SRB, had taken out a substantial bet that prices would fall. Mr Liu is understood to have promised to sell 200,000 tonnes of copper he did not own - taking a "short" position - next month. He bet that the price would fall, allowing him to buy it cheap and sell at the higher price.
But the unabated surge in prices is making it increasingly likely that he - or the Chinese authorities - will be forced to buy the metal to meet the contract. According to Reuters, Mr Liu might have built the positions through eight brokers in London at prices of less than $3,500 a tonne. If he went short last spring, as traders believe, it could translate into $200m losses.
The London Metal Exchange, through which the trades were placed, is not responsible for the trades and has insisted its role is to "maintain orderliness". If Mr Liu and his employers refuse to honour the deal, the brokers would have to cover the losses.Reuse content