November 18, 2005

RUNNING WITH THE DOGS:

China to LME: Come and get me, copper! (David M Lenard, 11/19/05, Asia Times)

Copper prices on the London Metal Exchange (LME) continued to test new highs of US$4,580 per ton for three-month advance delivery on November 18, amid continuing uncertainty over whether China's State Reserve Bureau (SRB) held enough copper to deliver on trades made by disgraced "rogue trader" Liu Qibing. [...]

Mark Topfer, a former lawyer at the LME, predicted that China would default on the trades because it lacked the metal to make good the commitments of the fallen copper trader. In a Bloomberg story, Topfer depicted China's obligations for copper deliveries into LME-approved warehouses as "infinitely higher than the stock that exists". Topfer was the London exchange's deputy general counsel until last year, and advises LME brokers and customers.

A China Daily story on November 17, citing an unnamed official, acknowledged that as much as 200,000 metric tons of copper would have to be delivered to fulfill the positions amassed by Liu. According to Bloomberg, total inventories worldwide at warehouses monitored by New York's Comex Exchange, the LME and the Shanghai Futures Exchange amount to 140,374 metric tons. Adding to the perception of a supply crunch are recent reports by copper industry analysts showing a fall in mining output. [...]

London sources generally maintained that China would ultimately be held liable for Liu's activities and warned China to expect little sympathy from British authorities, even if it turns out to be true that the SRB was misled by the missing trader. The South China Morning Post quoted Alastair Clayton, executive chairman of London-listed copper developer South China Resources, as saying, "The market's got the bit between its teeth now and what the Chinese will be realizing is that [the London market] likes nothing better than kicking someone when they're down."

Posted by Orrin Judd at November 18, 2005 8:24 AM
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