Commodities: Merchant challenges wool board

THE remnants of Britain's wool monopoly are being challenged by a feisty Scottish wool merchant.

Last week, the Court of Session in Edinburgh banned the Strathclyde merchant Reid and Robertson from buying wool direct from farmers instead of through the British Wool Marketing Board's auctions. But the story may not be over yet.

The affair started earlier this year when the Government withdrew its subsidy to British sheep farmers, ending a 42-year tradition of paying them a guaranteed price for their wool.

But sheep farmers decided to keep the British Wool Marketing Board's auction system in place, because they thought it was the fairest way for producers in even the remotest locations to market their wool. The board handles more than 50 million kilos of wool each year from Britain's 93,000 producers.

Reid and Robertson of Alexandria, Scotland's leading wool merchant, does not accept that the wool board is the best way forward and believes that its prices were unfair. John King, director, said that with the subsidy withdrawn, farmers were forced to sell at below market prices to the statutory buying monopoly.

'The BWMB is making farmers suffer because of its feudal and draconian policies,' it said.

Last month Reid and Robertson announced a proposal to buy wool direct from farmers at more attractive rates than the board auctions.

However, before it could do so, the BWMB got the court injunction preventing the merchant from making any purchases.

Alun Evans, BWMB chairman, rejects claims of unfair prices, saying that farmers will receive the balance of what they are due next year.

'It was because producers were so dissatisfied with the chaotic and discriminatory system for selling wool that existed after the war, that the BWMB was established with support from the farming unions,' he said.

'I firmly believe that most producers realise that to continue to support the scheme is crucial for everyone involved in the UK wool industry.'

Most producers may back the BWMB, but not all. A second dissenter, the Kent merchant John Marshall, planned to buy direct from farmers as well. But he dropped the plan when threatened by the board.

He said several sheep farmers have told him that they want free trade in wool, because despite a depressed market, they could get a better price.

Mr King of Reid and Robertson is convinced that there will be more challenges to the monopoly, and awaits the judge's written findings before renewing his lobbying efforts.

'We have had informal meetings with farmers, and from the feedback we think we do have support.'

COPPER DEFIES LOGIC

Something fishy is going on in the copper market again. On the London Metal Exchange, copper prices have been rising steadily despite the recent buildup in LME copper stocks to the highest levels in 15 years.

The two phenomena would seem to be mutually exclusive according to the laws of supply and demand, but the copper market is defying economics.

Their simultaneous occurrence, at a time when copper is in world surplus, has not escaped the LME. Last week it served notice that it might take action, its second warning to the copper market in a month.

David King, chief executive, told LME members on Thursday that the exchange would continue to monitor copper closely. He trotted out rule 14, part 3, of the LME's trading regulations, which says that if LME directors or the clearing house suspect that any party is cornering a market, the LME can take whatever steps it deems necessary.

Since April, prices have rallied from five-and-a-half-year lows of dollars 1,705, to the current dollars 1,967. William Adams of the metal trader Rudolf Wolff says that hectic copper options activity has added to the upward momentum.

Behind the scenes, metal traders are speculating about the presence of a large Far Eastern player, possibly the powerful Sumitomo Corporation, whose control of a large amount of LME copper stocks may be pushing prices higher.

Last year traders suggested that Sumitomo, one of the world's leading traders of physical copper, was behind the December copper market squeeze.

Sumitomo said that it had been buying copper to fill a large order from its biggest Japanese customer, among others. Ultimately, the LME persuaded it to release metal to help to loosen the price squeeze.

Squeezes make life difficult for market participants legitimately trying to hedge purchases or sales of a commodity. During last year's copper squeeze, consumers complained because they had to pay higher prices than they felt were justified.

This year's tight situation is likely to be resolved suddenly and rapidly. The market may balk at further stock build-ups, or producers may sell if the price reaches a technical trigger point such as dollars 2,000. Lawrence Eagles, analyst with GNI Commodities Research, believes prices could then tumble as low as dollars 1,500, more accurately reflecting overabundant supplies and feeble demand.