Copper craze

Copper prices have been increasing for a couple of months now. On November 17, the price for one tonne of the metal hit a record of $4,180 (zł.14,116), beating the record set just two days earlier, at $4,174 (zł.14,096). As a consequence, the share price of Polish metals giant KGHM has been soaring.

The rise in copper prices occurred despite an announcement earlier in the year from the Chinese State Reserves that the country had increased its copper stock, and was ready to part with some of it. However, the market reacted with skepticism, believing that China was only trying to lower the price in order to buy more of the metal for less.

A few months ago, China made the surprising move of revealing its quantity of reserves: 1.3 million tonnes - 300,000 tonnes higher than experts' estimates. Still, copper prices continued to increase.

Marcin Mostowy, head of KGHM's commodity risk unit, reveals why the market was so incredulous: "At the beginning of the year a Chinese trader made a so-called 'short position' offer, saying he was selling from 100,000 to 200,000 tonnes of copper [eight to 15 percent of China's reserves] on behalf of the Chinese Government ... then [this autumn] he vanished." That raised questions as to whether the Chinese actually intended to release their reserves.

Mostowy continues: "The Chinese State Reserve suddenly said that they did not know this man and later made this shocking move to reveal the level of their copper reserves, which normally would not - and should never - happen. Now they have to cover this man's offer and move this huge amount of copper from their reserves to the market."

The market believed however, that China overstated its reserves to convince metal traders that it could afford to let go of such a large amount. Traders believe that China will simply have to buy back the copper it is now obligated to sell. In anticipation, traders have been buying the metal in droves, driving the price skyward.