Liu Qibing: China’s Nick Leeson?

Readers may have noticed ACB‘s first comment on the current open thread regarding the whereabouts of a Mr. Liu Qibing – a London-based copper futures trader who worked for China’s State Reserve Bureau (SRB) at the London Metal Exchange. Mr. Liu gambled that copper prices would fall – and stands to lose a huge Nick Leeson-esque amount of money after the gamble backfired spectacularly. He then mysteriously disappeared.

China’s consumption of copper has surged 23% over the last two years (compared with 10% globally) and China’s growth has played a large part in driving up world prices.

Reports are contradictory, but all agree that Mr. Liu committed China to sell up to 220,000 tonnes of copper at the end of the year. Mr. Liu, sold the copper at, allegedly, US$3,300 a tonne. He gambled that he would be able to buy it more cheaply when it was needed (known as going “short”). However, this year, copper prices actually increased by 38% (3 month delivery prices recently jumped to US$4,119). As demand is still raging, who knows what the prices will be at the end of year? Therefore, the losses are potentially huge – they could reach the best part of US$1 billion.

No surprise, therefore, that China’s SRB recently started to sell copper openly on the spot and futures markets – trying to drive prices down. A long-held Chinese policy made even more pressing considering recent developments. Also, this very scandal has caused copper prices to rise as speculation continued with regard to China having to buy more copper in order to meet trading commitments.

More intrigue, the SRB, initially denied that Mr Liu existed: “We do not have such a person working for us.” However, that then changed to a statement saying Mr. Li’s actions ‘were the responsibility of this trader and not the SRB’. Nevertheless, despite this wriggling, the debts will have to be met eventually.

In the meantime, poor Mr. Liu is rumoured to be at home in Shanghai. The latest reports claim that the SRB still maintains that Mr. Liu acted independently and they refuse to take responsibility. Meanwhile, other reports add that copper prices may easily climb to over US$4,500 by the end of year.

Update here.

The Discussion: 8 Comments

Looks like the Communist government will default on those contracts:

http://news.ft.com/cms/s/54eb8a48-574b-11da-b7ea-00000e25118c.html

November 17, 2005 @ 10:03 am | Comment

I am not a financial expert, but I have a thought here. If the Chinese disown the trades of a guy ostensibly trading for the Chinese Government through a Chinese Government trading firm, would you not abandon all trust of Chinese government-linked organizations as trading counterparties?

They’ll have to pony up. But look at this way: unlike Baring’s, they are unlikely to be bankrupted.

November 17, 2005 @ 7:13 pm | Comment

If the man was employed by the State Regulation Center for Supplies Reserve at the time of the trades, China will pay. Legally and practically, they have no choice. Not only is there an established binding dispute resolution process outside of the corrupt Chinese courts, if the Chinese government walks away from a billion dollar loss, they can expect to pay one hell of a risk premium on all future trades in all commodities and financial instruments.

This is bluster from an arrogant and ignorant state official. But there are people higher up in the government who must understand that this defense is a non-starter.

November 17, 2005 @ 8:01 pm | Comment

I think some of you have been asleep. I’ve been hearing rumors form the Shangahi futures market that this guy was acting under orders from above, and that a number of Chinese interests including the SRB and Minmetals were working on a large shortsell deal together and that Liu is bein grailroaded as a scapegoat for a centeral government balls-up.

November 18, 2005 @ 1:03 am | Comment

Shoud we be investing in copper? ๐Ÿ˜‰

November 18, 2005 @ 7:59 pm | Comment

Shanghai Slim

Given the world today, I will be investing in canned food, ceramic body armor, small arms, and soft porn. The first three will get me through a regional conflict brought on by US foreign policy, and the fourth will give me something to sell to all of the GIs who will be sent to my country in order to fight said conflict.

Copper is too high and there are concerns over its supply, wait the market stabilizes.

November 19, 2005 @ 11:53 am | Comment

Be careful.

Just heard a rumor that the chinese state concil might issue an order to domestic industries to sell (or at least stop buying) copper during the delivery week of december.

It is said to be “An intension to counter the international speculation capital which have driven the price to a very distorted level”.

December 8, 2005 @ 3:20 pm | Comment

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