Bank of Russia allows ''extraordinary'' fall by U.S. dollar against ruble


By Rick Carew
Dow Jones Newswires
Tuesday, January 24, 2006

BEIJING -- China's State Reserve Bureau, which manages the country's
strategic reserves of commodities including oil, copper and grains,
said Tuesday it would ban its units from trading in a broad range of
financial instruments such as commodity futures, "to avoid more huge
losses on its investments."

The move comes within months of revelations that Chinese trader Liu
Qibing went missing after building millions of dollars worth of loss-
making copper short positions on the London Metal Exchange.

The bureau initially denied Liu worked for it, but it later emerged
he was trading on its behalf through the State Regulation Center of
Supplies Reserve, or SRCSR, a body affiliated to SRB.

The statement Tuesday was the first time the bureau acknowledged
large losses on its investments and the new rules appear to be aimed
at closing a loophole that allowed government departments to trade
derivatives without explicit permission.

The new rules also banned the SRB's units from trading shares, and
foreign exchange and corporate bonds in the domestic and overseas
markets. It also banned overseas investments.

While SRB is yet to officially acknowledge Liu traded for the
government, the statement said "those who make unapproved,
independent policy-decisions on investment will be dealt with

Copper prices on LME have been firm throughout last year on
fundamental factors such as supply constraints, but prices rose
particularly from mid-October, fueled by fears that SRB may find it
difficult to cover the short positions without buying from the

Eventually, the positions were partly rolled over and partly covered
by buying back from the market while China also made some
deliveries, reportedly to LME warehouses in Busan, South Korea.

"Obviously there has been a problem and they're managing the
problem. This is just another way of curtailing any further activity
for the timebeing," said a Hong Kong-based LME trader.

Although the statement didn't say anything on current positions that
the bureau or its units may still be holding, traders said the move
will have little impact on the market.

"I think the government will allow it to take time to deal with its
short positions, (while not allowing it to) establish new positions.
It should not have significant impact on prices," said Shen Haihua
with Southwest Futures in Shanghai.

Shen noted that the bureau had already reduced its involvement in
the futures market in recent months.

While the statement was posted on SRB's website only Tuesday, the
text of it was dated October 25, 2005, indicating the bureau may
have imposed the restrictions within about a week of the copper
scandal hitting headlines.

"Apparently, SRB has liquidated its positions on SFE copper futures
already and it is unlikely to build new positions, given such
restrictions," said Jian Hai, an analyst with Beite Futures Co. in

According to a report by the Shanghai Futures Exchange which trades
copper futures, Cofco Futures Co., a major brokerage through which
SRB is believed to have traded, is no more in the list of the five
top brokerages on SFE.

"Futures trading won't be affected as we have many other big players
around," another trader in Shanghai said.

Cofco was the largest copper short-position holder on SFE in
November, December and early January, according to exchange data.

Traders also see the new restrictions as temporary measures.

"Over time, those regulations will be eased because there is a need
to use the futures markets. It's just got to be used responsibly,"
said the Hong Kong-based LME trader.

He said the ban is a logical short-term step in cleaning up the mess
left by the copper short positions, similar to "fairly drastic
measures taken" following the Codelco crisis in early 1990's and the
Sumitomo scandal in 1996.

Moreover, SRB will continue to have an influence on the market as
its agencies are not banned from trading in the cash market.

"SRB can always try to move local copper prices through trading in
the spot markets and it is more direct that way," said Li Rong, a
metals analyst with Great Wall Weiye Futures in Shanghai.


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