China stands to lose at least US$100 million on the London Metal Exchange after a bet by a state commodities trader went spectacularly wrong, a press report said yesterday.
Citing a source close to China's State Reserve Bureau (SRB), the South China Morning Post reported that SRB copper futures trader Liu Qibin (劉啟斌) took short positions equal to about 130,000 metric tonnes of copper in July and August.
At the time, Liu paid about US$3,300 a tonne, expecting the price of copper to decline. Copper prices for delivery in three months' time are now about US$4,119 a tonne, the paper said.
"Liu disappeared from the market in early October and that week the bureau recovered about 50,000 tonnes of short positions on the London Metal Exchange, which pushed prices up to about US$3,800 a tonne," the source said.
"He has been singled out by the bureau as a scapegoat, but he was only acting according to bureau regulations and procedures," the source said.
But another source down-played the Chinese government's liability.
"If brokers have papers that are signed by Liu, the bureau won't obligate the positions because the bureau did not sign them," a senior official for a state-owned metal group said.
He said brokers needed to hold an authorization letter from the bureau certifying that Liu represented the bureau to open short positions on the exchange.
"If they have that, they can go to ask the government for money," he said.
Industry officials and analysts said the center might seek to share the financial pain of the unauthorized positions Liu might have taken with the brokers in a bid to settle the dispute.
Copper prices have soared this year, rising more than 30 percent, and on Monday they hit a record high of US$4,132 per tonne.
Other reports say Liu may have acquired positions of up to 600,000 tonnes of copper and losses could be much higher when contracts expire on Dec. 21.
"The market's got the bit between its teeth now and what the Chinese will be realizing is that London likes nothing better than kicking someone when they're down," the report quoted Alastair Clayton, executive chairman of London-listed copper developer South China Resources as saying.
Liu has also invited comparisons with Yasuo Hamanaka, a Japanese trader who lost US$2.6 billion for Sumitomo Corp in 1996, and China's Singapore-listed China Aviation Oil, which recently went under after losing US$550 million through derivatives trades that turned sour.
The newspaper said that Liu, who is in his 40s and who has been a metals trader for more than 10 years, is on a leave of absence from the bureau.
He is believed to be at his residence in Shanghai.
China, a huge consumer of copper, has in recent weeks tried to cool the price by drawing down some of its stocks.
In theory this should have made the price fall, and Liu was apparently banking on this happening by taking out what are known as short positions -- selling copper he did not have in the hope of buying back his underlying commitments more cheaply in the future.
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