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Source: Reuters

METALS-Copper knocked by China interest rate concerns

Published: 15 Nov 2010 18:06:52 PST

* Copper volumes beat daily average, over 15,000 lots

* Investors drop risky assets

* U.S. consumer sentiment rose up more than expected

LONDON, Nov 12 - Copper fell on Friday, receding from the previous session's record high to hit a one-week low on talk of an interest rate hike in top consumer China, but analysts said good fundamentals supported the metal longer-term.

Benchmark copper on the London Metal Exchange traded at $8,687.50 at 1547 GMT, down from a close of $8,830, but up from a day's low of $8,600 a tonne.

Zinc fell more than 5 percent to $2,412.25 a tonne, its lowest since Nov.3, while nickel fell more than 4 percent to $23,000 a tonne, its lowest since Oct.29.

Copper rose some 2 percent on Thursday to an all-time peak of $8,966 a tonne, surpassing levels hit in the commodity boom before the Lehman collapse in late 2008 that heralded a stinging global economic downturn.

Commerzbank analyst Daniel Briesemann said concerns about potential further Chinese monetary policy were knocking metals, but he said the fears would subside.

"This should only be short-lived," he said. "Even if they hike interest rates further or implement even more energy-saving measures, this should only have a short-term effect on base metals demand," he said of China.

China stocks fell more than 5 percent for their biggest percentage loss in over a year, on speculation the central bank will raise interest rates to tackle inflation.

"If China wants to grow further... then they definitely need more commodities," Briesemann added.

China started to signal monetary tightening intentions on Tuesday when it unexpectedly raised the yield on bills at a central bank auction.

"The Chinese are using all the tools they need now to accelerate some of the controls. If inflation threatens to get out of control they'll stamp on it very quickly," said RBC analyst Alex Heath.

But copper pared some losses as the U.S. dollar reversed earlier gains. Expectations of dollar weakness, since last week's U.S. decision to pump $600 billion into its struggling economy, have kept commodities attractive for investors.

Markets were also jittery due to concerns about sovereign debt in the euro zone. The euro rose but earlier hit six-week lows versus the dollar.

Ireland's finance ministry said on Friday it is not in talks to apply for emergency funding from the European Union, reacting to comments from euro zone sources that discussions had begun.

TIGHT SUPPLY

Tight supply has underpinned copper prices, with week-long strike action threatening to further curtail output from the world's No 3 copper mine, Chile's Collahuasi.

Across other metals, zinc, which fell by more than five percent at one point traded at $2,453, versus its $2,542 close.

China sold almost all of the 50,000 tonnes of zinc up for sale at an auction of state reserves on Nov 9, with an average sale price of 19,511 yuan per tonne.

Aluminium was at $2,436 a tonne versus $2,458, while lead was at $2,546.75 a tonne from $2,610. Lead hit a ten-month high of $2,650 on Thursday.

Tin was at $26,450, falling from $27,000, and nickel traded at $23,300 from $24,000, weighed by rising stocks and a dearth of demand from key consumers in the stainless steel sector.

"Base metals prices will continue their upward trend," Commerzbank's Briesemann said. "Fundamentals are clearly improving. This should give support in the mid- to long-term."

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