Is a Mr. Copper Behind the Price Increases?

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Non-ferrous Metals

We have heard its market fundamentals, we have heard its China buying, we have heard its hedge fund or ETF speculation, now the conspiracy theories are making the rounds concerning the copper price. The Telegraph newspaper ran an interesting feature today exploring the rumors circulating the market that the 76% rise since Christmas Eve 2008 is down to a Mr Copper trying to corner the market much as Yasuo Hamanaka of Sumitomo Bank did back in 1996. That well documented case of market manipulation ended in Sumitomo owning 5% of the copper market as the fraud was revealed and the price crashed. Sumitomo’s loses rose from $1.8bn on Hamanaka’s positions to $2.6bn before they could unwind them.

In 2005, Liu Qibing, a Chinese copper trader, with the Chinese State Reserves Bureau disappeared after mysterious price changes and it was found he had amassed a short position of between 100,000 – 200,000 tons of the metal. So in short, there are plenty of precedents for market manipulation. Traders can be excused for looking at the relentless rise in the copper price and wondering whether something else is going on. Some traders apparently suspect the large copper firms of stockpiling metal to support the price and hence their share prices in what has been a difficult time for metals miners and refiners. Most with suspicions though believe it is China using surplus dollars to build up copper positions under the radar in the hope it won’t boost prices in the way official SRB purchases have done.
The LME itself and many investment banks claim the conspiracy theories are nonsense, that no unexpected market behavior has been observed and that in fact the fundamentals for copper with falling ore grades, rising automotive demand, China buying and a tight scrap market are all contributing to price rises. Goldman Sachs is predicting $5800/ton by the end of 2010 and Morgan Stanley has said they favor copper over all the base metals. That won’t deter the theorists though. The LME always has been a hotbed of gossip and rumor, and traders will like nothing better than a good conspiracy theory to chew over between rings.

–Stuart Burns

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