Copper Continues Its Slide on Sumitomo Speculation

Copper prices fell for a third day Monday, dropping to their lowest level in more than two years on speculation that huge sales by Sumitomo Corp. could swamp the market.

Sumitomo may have as much as 2 million tons of copper to sell in the aftermath of a $1.8-billion trading loss it announced earlier this month.

Copper for July delivery fell 1.9 cents to 89.3 cents a pound on the New York Mercantile Exchange’s Comex division. That is the lowest since April 26, 1994.

Copper prices have plunged about 15% since Sumitomo’s losses were announced, on expectations that the company will sell its holdings.

John E. Tull Jr., acting chairman of the U.S. Commodity Futures Trading Commission, said the agency wants to know if Sumitomo’s former chief copper trader, Yasuo Hamanaka, manipulated or distorted prices in U.S. copper markets or on the Comex, where copper futures and options trade. Tull said Monday that the CFTC is still looking into whether trading by Sumitomo was part of a scheme to manipulate the U.S. copper market. The CFTC is among the U.S. and British regulatory agencies looking into the loss.

Tull told CNBC-TV that the agency has not ruled out the possibility that Hamanaka was trying to corner the copper market in an effort to boost prices.

Sumitomo will be allowed to sell its holdings in an orderly fashion, Tull said.

“While the trading at issue was not done on our exchanges, we will focus on whether there has been any resulting manipulation of the U.S. copper market,” he said.

“Indeed, our primary concern in the Sumitomo debacle has been any effect it may have had on U.S. firms and the U.S. market.”

Sumitomo has said Hamanaka accumulated $1.8 billion in losses as a result of unauthorized trading over 10 years. However, some analysts say the losses could be much more substantial--perhaps as much as $3 billion.

A Sumitomo spokesman told Reuters: “Total trading losses may fluctuate in line with world copper prices. But considering the recent price movements, we still estimate the losses at about $1.8 billion.”

Traders estimate that Hamanaka bought and sold as much as 500,000 metric tons of copper annually, along with tens of millions of dollars’ worth of copper contracts.

When asked about the decline in copper prices, Tull said on CNBC that he assumed that copper was not being dumped on the market.

U.S. authorities plan to send a team of investigators to Tokyo soon in a joint trip with British regulators to question Sumitomo, a CFTC spokesman said.

Officials from the CFTC’s enforcement, accounting, and trading and markets divisions are likely to team up with investigators of the British Securities and Investments Board, which is also examining Sumitomo’s losses, CFTC spokesman R. David Gary said.

Tull said he does not know where his agency’s investigation might lead or when it will be complete.

“We’re going to take whatever time it takes to thoroughly investigate the situation from top to bottom,” he said. Tull said he wants to ensure “that this thing doesn’t happen again--certainly to ensure that this doesn’t happen in the U.S.”