October 11, 2010 (Chinavestor) Most investors and market observes probably view China's relationship with copper as one of consumption. To a degree, that's true as China is the world's largest buyer of the red industrial metal and comments and statistics about China's copper use move that market in a big way. Well, there's more to it than that as China also has shown some trading acumen.
According to a report in the Financial Times, China is sitting on a profit of $1.5 billion from a bold trading strategy in copper based on expectations of an emerging markets-led boom. China's China’s State Reserves Bureau supposedly gobbled up plenty of copper when prices plunged during the financial crisis and is now sitting on a tidy paper profit.
While the SRB doesn't publish its purchases, metals traders estimate that the SRB bought between 250,000 and 300,000 tonnes of copper, equal to nearly 2% of global annual production, in early 2009 at a price of less than $3,500 a tonne, the FT reported. With copper prices soaring last week, observers have estimated China has a profit of somewhere between $1.2 and $1.5 billion on its copper reserves.
Goldman Sachs (NYSE:GS) told the FT that it believes the SRB will start to recognize some of those profits in the near-term. The SRB will not want to cause significant disruption on the copper market, so it be reasonable to expect any sales of copper it conducts to be small and incremental in nature.