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China raised the possibility on Thursday that it might not recognise a series of controversial copper trades on the London market when a Beijing official said the Chinese trader involved was acting in a “personal” capacity and was no longer employed by the government.
The comments from an official at the Strategic Reserve Bureau in Beijing were the first public statement from the government about the actions of Liu Qibing, the missing Chinese trader who is believed to have taken a short position on the London Metals Exchange in 100,000-200,000 tonnes of copper.
“As far as I know, the loss was a result of his personal actions, instead of the government’s,” an official at the SRB told China Daily, the official English-language newspaper.
Mr Liu was a director of the State Regulation Centre for Supplies Reserve, a government agency in Beijing which conducts financial market operations on behalf of the SRB, which manages the government’s supplies of raw materials. He was well-known in the copper market in China and in London.
The statement from the SRB official did not specify whether the government would recognise the trades or say when Mr Liu ceased to be employed by the agency. However, it left open the possibility that Beijing may claim it has no responsibility for the trades.
The comments also made it clear that the government would argue Mr Liu was acting as a “rogue trader” outside of normal management controls and was not acting upon orders from his managers when he executed the large number of trades.
If China fails to honour the trades, there is concern that the counterparties on the LME would be left with unenforceable contracts. Some eight brokers in London are believed to be involved.
Investors also fear that the market for copper could become destabilised if the unenforceable short positions amount to the feared tens of thousands of tonnes.
If Mr Liu did indeed bet massively that copper prices would fall, the move backfired, as prices have hit new highs this week as speculators moved to exploit his predicament.
Global stockpiles of copper are estimated at 140,000 tonnes currently, while the short positions are feared by traders to amount to up to 100,000-200,000 tonnes.
The next due date for delivering physical metal is December 21, when some of the trades are likely to be exposed.
Three-month copper rose to $4,167.5 a tonne in nervous trade by mid-morning on Thursday, just short of the record peak of $4,175 reached on Tuesday.