Speculation that China is selling copper reserves in a bid to reduce the price of the metal caused copper futures in Shanghai to fall yesterday.

Copper for delivery in January next year fell by 270 yuan to 36,520 yuan (US$4,516) a metric ton yesterday on the Shanghai Futures Exchange.

The Zhengzhou-based Futures Daily reported earlier this month that the State Reserve Bureau (SRB) would release copper stockpiles to ease a domestic shortage.

Sources say Cofco Futures Co sold 8,000 lots, or 40,000 tons of copper, on behalf of the SRB on Monday on the Shanghai Futures Exchange, one of the three domestic futures exchanges.

COFCO Futures Co, a subsidiary of COFCO, one of country's largest import and export companies, declined to comment on the matter.

"We have no comment on the issue, neither to deny nor to acknowledge the rumors," You Long, a senior COFCO official, told China Daily, citing company policy to keep confidential their customers' deals.

China Daily was unable to contact an SRB official.

Yesterday's fall in copper futures in Shanghai comes as a relief to the government, raising hopes that the price of copper on the spot market will also decrease.

The government has long feared that soaring copper prices will hurt the economy.

Copper prices have jumped 36 percent in the past year, fuelled by surging demand in the economy, which grew 9.5 percent in the first three quarters of this year.

The average copper price stood at US$1,779 per ton in 2003, a figure that has since climbed to US$2,865 per ton last year and US$3,328 per ton during the first half of this year.

Industry analysts are divided about the outcome of the SRB's latest move which, although not officially confirmed, is widely believed to be true.

"The move by the SRB will, to some extent, rein in rising copper prices," said Zhang Fang, an analyst with Beijing-based China Securities.

"Although it is hard to see the price falling by a big margin, at least it will stabilize copper for a while," she said.

The price of copper on the spot market, she said, is expected to see a small decrease in the remaining months of this year and into early next year.

But Wang Qianming, an analyst from CITIC Securities, disagreed.

"It (the release of copper reserves) will have a limited effect on the price of copper on the spot market," he said.

"Even it does have an effect, it will be short-lived."

The market's strong demand, the analyst said, means copper will not go down, at least for the time being, as the SRB's measure will not be enough to satisfy demand.

The estimated amount of copper reserves that the SRB plans to sell varies, ranging from 40,000 tons to 80,000 tons, according to industry analysts.

(China Daily November 9, 2005)