China's reserve agency yesterday failed to sell an overwhelming portion of its copper in its fourth public auction, leading analysts to doubt the effectiveness of its attempt to drive down the metal price at a time when it is at a historical high in the London market.

The State Reserve Bureau (SRB), China's stockpiling agency, in its fourth auction yesterday sold only about 3,400 to 4,000 tons of copper out of a planned 20,000 tons, according to bidders who participated in the auction.

The copper was auctioned between 38,750 yuan (US$4,796) and 39,050 yuan (US$4,833) a ton, prices that bidders say were set too high, though analysts argue that they were rational in considering the price level in both the spot and futures markets.

"The auction prices, which are very close to the spot price, are too high to swallow," said Tang Jie, a manager from Shanghai Dachang Copper Co Ltd, which participated in yesterday's auction.

Only copper producers or processors were allowed to participate in yesterday's auction, trading companies and other entities that were eligible in the previous auctions were excluded this time round, a change that many say might have been an additional factor causing the large number of failed bids.

Reacting to the auction outcome, Shanghai copper futures ended on a high yesterday.

Copper futures for the February delivery, the most actively traded, closed at 38,720 yuan (US$4,792) a ton, jumping by 270 yuan (US$33) from Tuesday's close.

In the previous three auctions, which were intended to bring down the domestic copper price, SRB has sold a total of 47,399 tons of coppers at a weighted average price of 37,794 yuan (US$4,677) a ton.

But the copper price, instead of dropping, has risen since the first auction, which was held on November 16.

Analysts say the domestic copper price, despite the copper auctions, is unlikely to drop for the time being considering its pricing mechanism and market conditions.

"Domestic copper prices are determined by referring heavily to the benchmark price in London," said Zhang Fang, a copper analyst at CITIC Jiantou Securities Research Institute.

"Therefore, at a time when the copper price is hovering at a historical high in the London market, it is hard to expect the domestic price to drop," said the analyst.

"The high London copper price and the tight supply on the ground determines that the domestic spot and futures prices would not be swayed significantly by the auctions," said Chen Zhiqiang, an analyst at China International Futures Co Ltd, (CIFCO), the country's biggest futures brokerage.

Although many say SRB's high-profile auction bids have largely failed to rein in the runaway metal price, they all agree that the auctions did ease many copper processors' immediate production needs.

The copper sale has "to some extent alleviated the tight supply in the market," said Chen, the CIFICO analyst.

"If there were no auctions at all, the current price would have been even higher," Chen said.

(China Daily December 8, 2005)