Nov. 23 (Bloomberg) -- Copper had its biggest drop in four weeks in London on speculation China delayed some deliveries of the metal to limit losses on wrong-way bets by government trader Liu Qibing.

The government may settle some of the trades by paying cash or delivering metal, or rolling over some contracts into 2006, said Yuan Fang, a trader at Shanghai Dongya Futures Co. As much as 200,000 tons had to be delivered by Dec. 21 under Liu's trades, the state-run China Daily said last week. Liu speculated prices would fall. Copper has risen 29 percent this year to a record.

``There's speculation China will deliver some 50,000 tons into Asian warehouses and roll some of the shorts forward,'' Yuan said in Shanghai. ``Expectations that China may not have to buy so much metal to meet commitments prompted fund selling.''

Copper for delivery in three months on the London Metal Exchange was down $44, or 1.1 percent, at $4,068 a ton as of 12:08 a.m. local time. Earlier it fell as much as 2.5 percent, the biggest one-day decline since Oct. 21. Copper traded at a record $4,243 on Nov. 18 and 21.

The decline on the LME, the world's biggest metals bourse, happened after drops in New York and Shanghai. Copper futures on the Comex division of the New York Mercantile Exchange yesterday had their largest one-day drop in three months, closing down 2.45 cents, or 1.3 percent, at 182.30 cents a pound.

On the Shanghai Futures Exchange, copper for delivery in January closed 1,080 yuan, or 2.9 percent, lower at 35,950 yuan ($4,448) a ton. That's the biggest one-day decline since May 13. Chinese copper prices include 17 percent tax and a 2 percent import duty.

China Aviation

The country may lose as much as $300 million from the wrong- way bets, according to Wang Zheng, a trader at Shanghai Dalu Futures. The loss, which the China Daily blamed on Liu's personal actions, is the second time in a year a Chinese state-owned company has got into trouble in commodity markets.

China Aviation Oil (Singapore) Corp. sought protection from creditors a year ago after it ran up $555 million of debt by trading oil derivatives. The company bet prices would fall. In the event, they rose to a record.

China, the world's biggest user of copper, is more likely to honor money-losing copper transactions than declare a default that would shake confidence in its ability to trade, according to analysts including Morgan Stanley's Wayne Atwell.

``It's unimaginable to me that they will welch on a deal like this,'' said Atwell, a Purchase, New York-based analyst, in a Nov. 21 interview. ``If the Chinese walked away on this, it would have huge ramifications in terms of obtaining credit.''

China imports the metal from countries including the U.S. and Chile. Failing to honor the contracts would jeopardize its burgeoning trade with the rest of the world, valued at $645 billion in the first half.

Rollover

``They have probably negotiated a rollover,'' said Foo Choy Peng, a resources analyst at UOB-Kay Hian Ltd. in Hong Kong.

Liu has been under house arrest since mid-October after making unauthorized trades on overseas markets, the Economic Observer, a provincial government newspaper, said this week. Messages and e-mails sent to his mobile and landline phones haven't been answered. His mobile phone is switched off.

``There's a whole load of unanswered questions in the market,'' said Andrew Silver, a trader in London for Natexis Metals, one of 11 companies that trade on the floor of the LME.

Rising copper stockpiles in exchange-approved warehouses in South Korea are the result of shipments from China as the State Reserve Bureau, the stockpiling agency, meets its commitments, Cai Luoyi, head of research at China International Futures (Shanghai) Co., said today.

Auction Flops

Inventories in Busan, South Korea, have more than doubled since the start of October to a record 24,350 tons, the London Metal Exchange said yesterday. The bureau may ship 20,000 tons to Busan and 10,000 tons to warehouses in Singapore, Gu Yuan, a trader at Shenzhen Star Futures Co., said yesterday.

China's government stockpiling agency failed to sell almost half the 20,000 tons of copper it was offering at auction today in Beijing because falling futures prices made it cheaper to buy the metal on the Shanghai Futures Exchange, said Huang Xiaotian, general manager at Golden Dragon Precise Copper Tube Inc.

The bureau will offer another 20,000 tons at auction on Nov. 30 as part of its efforts to damp domestic prices.

``They are trying to hose down the market,'' said Gavin Wendt, an analyst in Sydney at Fat Prophets Fund Management, in a telephone interview today.

Sempra Metals Ltd. executives were going to Beijing to discuss the short positions with the bureau, the China Business newspaper reported Nov. 21, without citing anyone. Tom McKeever, chairman of Sempra Metals, declined to comment when contacted by Bloomberg in London. Sempra is among foreign companies trading metals with clients in China.

Other metals on the LME also dropped. Aluminum fell $13, or 0.6 percent, to $2,026 a ton. Nickel was down $100 to $12,475, zinc dropped $33 to $1,602, lead fell $19 to $960 and tin was $50 lower at $6,000.

To contact the reporters for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net; Simon Casey in London at scasey4@bloomberg.net

Last Updated: November 23, 2005 07:10 EST