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Thread: China hunts fugitive commodities trader

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[quote=MARRIE,307733]Liu began betting on a drop in the copper price this past spring, when China's central bank was preventing state banks from lending to real estate developers to prevent inflation. He figured the policy would continue, keeping the clamps on development and limiting the demand for copper. However, under pressure from local governments demanding development, the central bank again turned on the lending taps. A new wave of construction commenced, and with it a surge of demand for copper for wiring in a country that now absorbs roughly one-fifth of the worldwide supply. The price has risen by roughly one-third this year.

"So much is still controlled not by market forces, but by government decisions in terms of opening and closing the floodgates of credit," said Arthur Kroeber, managing editor of the China Economic Quarterly. "There is no mechanism for communicating these decisions, even in an indirect way, to the market."

Liu's bet was placed via futures contracts -- an agreement to deliver a certain amount of copper in December at a fixed price. Had the price dropped, Liu could have bought what he needed at the lower price, delivered the agreed-upon amount, and pocketed the difference. The rising price meant that he would have to shell out extra for the copper he was obligated to deliver.

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