This is continue from my previous Post
Over the last two year. Liu Qibing has been executing short (selling) position in London Metal Exchange while executing long (buying) position in Shanghai Future Exchange simultaneously to earn the price different between the two market. Or what professional trader call "arbigrate trade"
Malaysia "Sugar King" Robert Kwok was skillful in "arbigrate trade" in international sugar market. George Soros and other hedge fund are doing arbitrage trade on various commodity and financial intrument.
Liu Qibing strategy however, cause his short (sell) position in London making loss while his long (buy) position in make a profit. Speculator in China make a huge loss position as they taking a short (sell) position in Shanghai Future Exchange. This make Liu Qibing a dirty word among speculator in China.
This make people remember Yasuo Hamanaka, a trader at Sumitomo corporation. Yasuo Hamanaka control 5% of world copper trade at some point of time. However, he make a huge loss of USD2.6billion in a mistake in 1996.
Yasuo Hamanaka make loss by taking a long (buy) position while Liu Qibing making loss by taking a short (sell) position.
From October 2004 until March 2005, other trader said Liu Qibing is "Trading" in the market by buying and selling actively without taking a position. He close his position fast and SBR making a lot of profit in Shanghai Future Exchange as Liu Qibing able to predict the market accurately. This make Liu Qibing over confident on his own capability.
However, Liu Qibing was not lucky in London Metal Exchange. London Metal Exchange comprise 80% of world copper trading volume, while Shanghai Future Exchange and New York Future Exchange comprise 10% of world trading volume each.
This mean Liu Qibing is not as easy to "manipulate" London Metal Exchange like what he did to Shanghai Future Exchange.
Observer said that Liu Qibing loss position in London Metal Exchange amounting to approximately USD150million. If Liu Qibing doing arbigrate trade. SBR should have some profit in the local China future market, which able to offset loss in London Metal Exchange.
Liu Qibing should understand that by taking a short position without simultaneously doing a long position to hedge the risk. He has expose himself in huge risk.
Insider said that the battle between SBR and international speculator is yet to over. Who will be the ultimate winner is yet to be concluded!
Future market is a zero sum game. I the long term, market price is determine by economic development and international demand and supply. However, in short term situation like this. Future market price of copper determine long short battle and their financial back up capability.
Market insider said the settlement date of Liu Qibing short position of 150-200 thousand tonne of copper build up on London Metal Exchange is on 21 December 2005.
This mean SBR has USD200million unrealized loss position. However, the battle is yet to over.
SBR might deny the trade entirely. SBR has initially deny it has a staff call Liu Qibing initially. Later, SBR said Liu Qibing is on leave and the trade represent his own position. Not SBR.
An unname officer in SBR said that primary investigation indicate that trader should individually responsible for his own loss.
Another analyst also said that Liu Qibing trade was unauthorized. Thus, might not be execute legally.
Broker and Settlement house are worried if SBR refused to honor the trade or claim it unauthorized. Broker and settlement house might have to bear the loss themselves.
Source said that 8 future market broker, speculator and a bank has fly to Beijing to negotiate with SBR on dispute on London Metal Exchange.
Excerpt and translate from Oriental Daily.
Related Link : Bloomberg The Economist The Peking Duck Paul Kedrosky's Infectious Greed The stalwart Angry Chinese Blogger
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