Copper eased from all-time highs in London today, but the market remained fixated on a trade position believed held by China that could push prices sharply one way or the other.
London Metal Exchange (LME) copper for delivery in three months touched a record $4,132 a tonne having surged 30 per cent this year.
Some analysts say the market has been pushed up by profiteers hoping to cash in on China having to resolve its short position - effectively a bet the market will fall - that is thought to be in the range of 150,000 to 200,000 tonnes.
Dealers are concerned that although prices are in an upward trend, a trader for China's State Reserves Bureau may have taken the position on the LME without official sanction.
A senior SRB official said it had no evidence of the position but if it did exist it would be on the trader's own account.
Liu Qibing headed up physical and futures trading working for part of China's State Reserves Bureau and has not been heard from for a few weeks, after rumours surfaced of a large short position held by his employer on the LME.
London traders estimate the short position could be 150,000 to 200,000 tonnes, more than twice the size of the stocks stored by the LME, the world's biggest non-ferrous metals exchange. Exchange officials were unable to comment.
"Traders had speculated that the SRB intended to deliver physical copper to close out these short trades," Numis Securities analyst John Meyer said in a note. "...it would now appear difficult to deliver sufficient tonnages of copper into LME warehouses by mid December," he added.
China, which consumes about 20 per cent of the world's copper, has been trying to cool prices with highly-publicised deliveries and sales of metal to its domestic market. The SRB plans to auction 20,000 tonnes of copper on Wednesday, but traders said the sale would have little effect on prices.
They said the sale was equivalent to less than a week's domestic consumption. COMEX copper prices surged on Monday on the SRB's comments in anticipation of a possible short squeeze when and if the rumoured positions come due in December.