Michael Covel

Trading is a zero sum game. It takes ‘losers’ to give ‘winners’ their profits. For example from Yahoo! Finance:

“China stands to lose at least 100 million US dollars on the London Metal Exchange after a bet by a state commodities trader went spectacularly wrong, a press report says. Citing a source close to China’s State Reserve Bureau (SRB), the South China Morning Post reported that SRB copper futures trader Liu Qibing took short positions equal to about 130,000 metric tonnes of copper in July and August. At the time, Liu paid about 3,300 dollars a tonne, expecting the price of copper to decline. Copper prices for delivery in three months’ time are now about 4,119 dollars 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 3,800 dollars 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.”

“Copper prices have soared this year, rising more than 30 percent, and on Monday they hit a record high of 4,132 dollars 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 December 21. “The market’s got the bit between the teeth now and what the Chinese will be realising 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 won comparisons with Yasuo Hamanaka, a Japanese trader who lost 2.6 billion dollars for Sumitomo Corporation in 1996 and the mainland’s Singapore-listed China Aviation Oil which recently went under after losing 550 million dollars through derivatives trades that turned sour. The newspaper said 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 home 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. Officials with the general office of the SRB, which is in charge of the country’s metals reserves, had repeatedly denied that Liu worked for them. However, traders in London and China told AFP Liu did indeed exist and, according to his business card, had headed the Beijing-based State Regulation Centre of Supplies Reserve (SRCSR), the state agency contracted to execute trades on behalf of the SRB.”