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China's copper position talk haunts market again

Written by: Staff
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SINGAPORE/BEIJING, June 5 (Reuters) Speculation of loss-bearing short positions held by China's State Reserves Bureau resurfaced on Monday in the metals market -- just as the bureau was believed to be planning to sell copper from its huge stockpile.

On Saturday, the South China Morning Post reported that the cost last year from the wrong way bets of a state copper trader on the London Metal Exchange had now risen to about 0 million from as estimated 0 million to 0 million.

Short positions on an estimated 100,000 tonnes to 150,000 tonnes taken by state trader Liu Qibing, who is believed to be under house arrest in Shanghai, are still outstanding, the Hong Kong-based newspaper said, quoting unidentified market sources.

Officials at the State Regulation Centre declined to comment on this report.

''This is such a murky issue. I think nobody truly knows the answer obviously except the SRB themselves,'' said Peter Richardson, chief metals economist at Deutsche Bank.

''It does suggest to me that this is broadly supportive of the market because it is indicative of an ongoing short position out there,'' he said, adding that it's separate from a rumoured short position held by a U.S.-based hedge fund.

The bureau is believed to have had a short position in the underlying futures market of more than 300,000 tonnes but had reduced it to about 180,000 tonnes in December 2005, trade sources said.

The Hong Kong newspaper report came several days after talk that the bureau, responsible for keeping and managing copper stocks for the world's largest consumer of the metal, was planning to sell some of its copper stocks.

Chinese traders said early last week that the price for spot copper in China was struggling on the prospect of extra supply coming from the bureau. They said the state body could start selling old copper stocks, possibly up to 100,000 tonnes.

MURKY ISSUE The sale, if it happened, would be the bureau's first public offer for spot copper this year. It sold more than 50,000 tonnes of copper in four auctions between November and December last year because, it said, the price was too high and supply was tight.

A Beijing-based copper analyst said the domestic market was expecting an auction of the bureau's old copper reserves, which are not registered at the LME and cannot be delivered to the exchange's warehouses.

The analyst believe the bureau is holding the auction so it can buy new copper which can be delivered to LME to cover its short position.

Some dealers said a delivery of 7,450 tonnes into LME warehouses in Singapore last Wednesday was also believed to come from the bureau, while others said the supply might have come from some Chinese traders as they needed to divert the cargo after their buyers backed off.

In early May, China's Securities Times reported, quoting an unidentified official at the centre, that the bureau had denied recent copper short-covering, which media reports said had contributed to record high prices on the LME.

Prices for copper, used in construction and electronics, reached an all-time high of ,800 on May 11. Since then, copper has retreated about 10 percent, but it is still up around 80 percent since the end of last year.

However, a dealer in Shanghai said: ''I do not care about SRB's short position as I don't think it will have much impact on the LME.'' ''But if SRB sells copper on the domestic market, then this will have much more significant impact on domestic prices,'' he said, adding the bureau was believed to have recently built about 10,000 tonnes of shorts in Shanghai for delivery in August.

By 0714 GMT, LME copper for delivery in three months was at ,930/,970 a tonne, up or 1 percent from Friday's London close of ,850.

REUTERS PV ND1544

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