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Copper Drops for a Second Day as Oil Stokes Inflation Concerns
Copper dropped for a second day in London on concern a rally in oil prices will boost inflation and support the case for further tightening in China, the world’s largest consumer. All six LME metals declined, led by zinc.
Three-month copper on the London Metal Exchange declined as much as 0.4 percent to $9,768.25 per metric ton, and traded at $9,795 at 12:12 p.m. in Singapore after earlier rising as much as 0.8 percent. The metal also fell as equities retreated and the dollar strengthened against a basket of six major currencies.
“In the near term, the rally in oil prices is definitely raising concerns about inflation and what this means for monetary policy not just in China but the U.S. as well,” Song Huaibing, an analyst at Ahcof Futures Co., said from Anhui.
China’s central bank on Feb. 18 announced an increase in reserve requirement ratios for a second time this year, 10 days after it raised interest rates for a third time in four months. The U.S. Federal Reserve has left its key rate at zero to 0.25 percent since December to support the economy.
Oil jumped to the highest in more than two years, while Asian stocks fell for a second day as violence escalated in Libya, stoking concern the global recovery may be hampered as turmoil spreads through the Middle East and North Africa.
Copper futures in New York fell as much as 1 percent to $4.5260 a pound, after earlier rising 0.7 percent. May-delivery metal on the Shanghai Futures Exchange lost as much as 1.5 percent to 73,720 yuan ($11,205) a ton, after gaining 0.5 percent earlier.
“Short-term risks include rising inventories and how the rest of the financial markets respond to geopolitical tensions,” said Yang Zhenqiang, an analyst at First Futures Brokerage Co.
Rising Stockpiles
Stockpiles tallied by the London Metal Exchange rose for a sixth day yesterday to 411,475 tons, the highest level since August. Inventories monitored by the Shanghai Futures Exchange jumped to a nine-month high of 161,062 tons last week.
“We view the recent gains in inventories as temporary and still expect the world to be short of copper as Chinese demand starts to pick up as we head into the peak period,” said Song.
Demand for copper in China is not slowing down even as the government attempts to cool the economy, Chile’s Mining and Energy Minister Laurence Golborne said. “Even with increasing inventories prices have remained firm,” Golborne said in an interview yesterday. Chile is the largest copper producer.
Refined-copper output is expected to gain 1.1 percent to about 19.3 million tons this year, while usage may grow 4.5 percent to 19.7 million tons, resulting in a 435,000-ton shortfall, according to the International Copper Study Group.
Zinc in London fell 2.9 percent to $2,520 a ton, lead shed 2.1 percent to $2,620 a ton and nickel dropped 0.7 percent to $29,101 a ton. Tin declined 1.9 percent to $31,750 a ton, and aluminum lost 0.7 percent to $2,563 a ton. Aluminum reached a two-year high yesterday on concern that unrest in the Middle East will disrupt supplies.
To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net