Its not just the Chinese -its the Banks, hedge Funds and futures...

Its not just the Chinese -its the Banks, hedge Funds and futures traders.
This WAS predicted last year (13/5/2006) in articles (there were several) that showed the "hollow", shall we call it, between the rising prices the crust) and the REAL fundamental support underneath. Something eventually had to give.
I saved this article at the time:

"I bet you didn't make this much last yearBanks face vast losses in copper
mayhem
By Ambrose Evans-Pritchard (Filed: 13/05/2006)

The spike in copper prices over recent weeks has left a group of banks and
operators on the London Metal Exchange (LME) nursing vast losses, raising
concerns about the stability of the commodities market.


Simon Heale unexpectedly said that he would be stepping down by the end of
the year
The banks have been caught out by a sudden widening in the gap between the
price of three-month futures and that of long-term futures, for December
2010 or April 2011.

"The dramatic differential we have seen over the past six weeks has cost
them a huge amount of money," said a market source. "The bigger players can
absorb the losses but smaller operators have nowhere to hide."

Copper surged this week to an all-time high of $8,875 a tonne, rising almost
10pc on Thursday. Yet futures prices for April 2011 are just $3,778 a tonne.

Barclays Capital denied reports that it faced losses of £500m on copper
trades, saying that it would have issued a statement if such claims were
true.

Banks help to finance the LME's $3,000bn trades each year, often taking on
long-term hedges from metal producers, which they cover by selling
short-term futures. If the two suddenly diverge, it plays havoc with their
books.

Adding to the intrigue, the LME's chief executive, Simon Heale, unexpectedly
said on Thursday that he would be stepping down by the end of the year. His
spokesman denied that there was any link to the metals mayhem this week,
insisting that

Mr Heale wished to spend more time with his family.

Copper has doubled in price this year even though industrial demand is flat.

"This is fairyland," said Richard Elman, head of the Noble Group. "We have

never seen such a disconnect between reality and pricing

of raw materials. The long-term story is sound but the short-term froth is
patently frightening."

William Adams, an analyst at BaseMetals.com, said demand for copper tubes
was collapsing as producers switched to PVC plastics. The market in Germany
has halved from 90,000 to 45,000 tonnes. "There's a very rapid switch from
copper. When it turns, copper could easily drop $1,000 a tonne in one day,"
he said.

David Threlkeld, a veteran copper trader, said the market had been "out of
control" for months, allowing speculators to run roughshod over industrial
producers and users. "The LME has been seduced by hedge funds, [which have]
pushed prices to levels unsupported by fundamentals. There's a vacuum below
and the crash could set off a chain of margin calls running through the
whole commodities sector. We've got a crisis on our hands and it is a lot
bigger than copper," he said.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/05/13/cncopp13.xml&menuId=242&sSheet=/money/2006/05/13/ixcitytop.html


GZ