Copper Dominated By Speculators, Price To Collapse- Threlkeld

NEW YORK, Jun 03, 2010 (Dow Jones Commodities News via Comtex) -- The doubling of copper prices through 2009 and into 2010 was "100% speculation" and will eventually collapse, the president of trading company Resolved Inc. said Thursday.

David Threlkeld told the Metal Bulletin copper conference in New York that citing Chinese demand for copper as a reason for the price gains was "absolutely ridiculous."

"It's like Enron accounting," he said. "For Chinese copper consumption to have apparently risen 43%, based on imports of 3.2 million metric tons in 2009, with no reported accumulation of stock, is absolutely ridiculous." Stocks in China are instead sitting in bonded warehouses, meaning they don't show up in official data and help drive prices higher.

But the "rampant speculation" that is behind the price rises will have to come to an end, Threlkeld said.

Threlkeld, who is widely accredited with blowing the whistle on the Sumitomo copper trading scandal in the 1990s, said eventually the copper market will unwind and prices collapse "because everyone who doesn't use it is long of it."

"We've no idea what's done in the over-the-counter market--no idea whether there's $1 trillion in open commodities positions--just like we didn't know in the credit mess," Threlkeld said. "The copper market has huge similarities to the housing market during the subprime crisis--overvalued assets, too much credit. If you're in the industry, the trick is to try and stay alive because the market is incredibly dangerous."

This means that copper no longer acts as a traditional economic indicator as a result, with around 90% of the money in copper invested by speculators and the remainder by the trade.