Copper's Continuing Rise Prompts Talk of Market Manipulation

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"It's got all the hallmarks of someone trying to corner the market."

All is not well at the London Metal Exchange, where the name "Mr. Copper" is once again being whispered among traders.

While the global recession has hit most commodities hard, the red metal has defied gravity and last week hit highs for 2009. Copper contracts for delivery in three months' time closed at $5,522 on Friday, 76% ahead of the low last Christmas Eve.

One trader said: "It looks funny. There are vast volumes being bought in the markets. It's got all the hallmarks of someone trying to corner the market."

Ever since 1996, when Yasuo "Mr. Copper" Hamanaka of Sumitomo Bank managed to buy 5% of the copper market in what was then the world's biggest fraud, the non-ferrous metals market is periodically swept up in conspiracy theories of foul play and manipulation.

The sharp rise in copper futures this year is good enough reason for the latest rumors. Once again China is a prime suspect where there has been strong buying interest. But there are other theories, too.

Some traders argue that some of the biggest firms could be trying to corner the market to keep their share prices high in what has been a torrid time for commodities firms. All the big firms deny this as nonsense while the LME itself has told several individuals who have complained that it can see no irregularities.

In a note this month, Morgan Stanley said that copper is the bank's "favored base metal exposure."

The research noted that, despite a "significant fall in consumption in the developed world in [the first half of 2009], emerging market consumption has remained resilient, especially in China." Whether this is China restocking while prices are low or an actual reflection of consumption is the subject of much debate.

Morgan Stanley adds longer-term factors are also pushing up the price of copper—growing signs of structural shortages in the scrap market and a long-term grade decline among some of the world's largest and most-productive mines.

But some LME traders are unconvinced: "This isn't anything to do with market forces. It's manipulation. You'll see."

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