SF: Copper Slumps After China, Biggest User, Raises Interest Rates
Oct. 19 (Bloomberg) -- Copper slumped in New York and London as China, the biggest consumer of the metal, increased its lending and deposit rates after inflation accelerated.
China last raised benchmark rates in December 2007. China's inflation quickened to 3.5 percent in August, the fastest pace in 22 months. Other industrial metals also retreated and the U.S. Dollar Index, a six-currency gauge, jumped as much as 1.1 percent. A stronger dollar increases the cost of dollar- denominated commodities for investors holding other monies.
Higher Chinese rates "suggests that the authorities are keen to ensure that inflation does not rise further," said David Thurtell, an analyst at Citigroup Inc. in London.
Copper for December delivery fell 9.35 cents, or 2.4 percent, to $3.7615 a pound at 8:18 a.m. on the Comex in New York. Copper for delivery in three months dropped 1.7 percent to $8,300.75 a metric ton on the London Metal Exchange.
LME-traded copper rose 3.7 percent this month as the dollar weakened on expectations U.S. policy makers will cut borrowing costs to zero by January. Federal Reserve policy makers next meet Nov. 2-3.
"This could represent the first move in a new approach from the Chinese authorities," said Nic Brown, an analyst at Natixis Commodity Markets Ltd. in London. "If the Fed is to go ahead with more quantitative easing, China may have decided that simply raising minimum reserve ratios isn't enough anymore."
Commodities will rally if the Fed eases monetary policy next month, according to UBS AG, which describes a likely second round of quantitative easing as a "game changer" for copper.
Largest Economy
The additional measures to boost the world's largest economy will increase capital flows to emerging markets, reinforcing commodity-intensive growth, the Swiss bank said in a note to clients today that summarized a commentary from Oct. 18.
In the U.S., housing starts rose 0.3 percent to a 610,000 annual rate, the most since April, Commerce Department figures showed today in Washington. Building permits dropped to the lowest level in more than a year.
Tin for three-month delivery on the LME fell 1.7 percent to $26,200 a ton. Prices reached a record $27,338.50 on Oct. 14. The metal has jumped 56 percent this year, leading advances on the exchange, after production was disrupted in Indonesia and the Democratic Republic of the Congo.
Aluminum slid 1.4 percent to $2,376.25 a ton and nickel fell 1.3 percent at $23,500 a ton. Lead dropped 1.2 percent to $2,408.50 a ton and zinc lost 0.7 percent to $2,408.50 a ton.
