BS: Copper drops with equities as yuan factor wanes
By Manolo Serapio Jr. of Reuters
MANILA - Copper has retreated with equities as market frenzy over China's promise of a more flexible currency eased and investors realised Beijing was unlikely to allow any sharp rises in the yuan.
The yuan slipped after hitting its highest against the dollar since a landmark revaluation in 2005 as China's state-owned banks stepped in and aggressively bought dollars, suggesting authorities want to control the pace of the yuan's rise.
Asian stocks fell as investors locked in gains from the previous session's rally fuelled by China's weekend decision to give its currency more flexibility.
"I think it's a gradual process. China won't allow a sharp rise, Commodity Broking Services managing director Jonathan Barratt said.
"The expectation is that China will use it as a tool to help support growth. That, in itself, I think, will support commodities."
A firmer yuan boosts the overseas purchasing power of China, the world's top copper consumer, which should aid prices pummelled to eight-month lows earlier this month by worries about Europe's debt crisis and slower Chinese growth.
Three-month copper on the London Metal Exchange slipped $US20 to $US6,575 a tonne by 0702 GMT.
The metal briefly rose after falling nearly 2 per cent earlier, soon after China's central bank set the yuan's reference rate to the dollar at its strongest since the July 2005 revaluation, which proved insufficient to sustain a rebound.
LME copper may see rangebound trading, with the price trapped between $US6,470 and $US6,729.75, Reuters market analyst Wang Tao said.
Shanghai's benchmark third month copper dropped 860 yuan to close at 52,840 yuan per tonne.
A Reuters poll of analysts showed Chinese authorities will only allow up to a 2.4 per cent rise for the yuan against the dollar by the end of 2010, keeping its word that it will keep the currency basically stable.
Royal Bank of Scotland, which expects the yuan to firm by 3 per cent to the dollar by end-2010, said China's move did little to change the fundamentals in the commodity markets.
"We remain concerned about the sustainability of the recovery in US commodity demand, weaker than anticipated demand in Europe, the impact of a slowdown in the Chinese construction sector and reactivation of idle production capacity," RBS said in a note.
"Against an uncertain macro (economic) backdrop, we believe it is unlikely that (a) modest and gradual yuan revaluation would provide the catalyst for significant commodity price gains in 2010."
