Copper Drops on Investor Concern China May Raise Interest Rates

March 11 (Bloomberg) -- Copper declined as inflation in China gained at the fastest pace in 16 months, fueling concern that the government and central bank may take further steps to cool the economy, potentially curbing demand for the metal.

The June-delivery contract on the Shanghai Futures Exchange fell 2.2 percent to close at 59,310 yuan ($8,689) a metric ton. Copper for three-month delivery on the London Metal Exchange dropped 1 percent to $7,363 at 3:59 p.m. Shanghai time.

China’s consumer prices rose 2.7 percent from a year earlier and new loans exceeded forecasts, figures today showed, adding to the case for the government to cut stimulus measures. The People’s Bank of China hasn’t raised benchmark interest rates since December 2007, before the financial crisis deepened.

“The CPI number fueled speculation for interest rate hikes, possibly in the second quarter,” Yang Su, an analyst at Jiangsu Suwu Futures Co., said from Nanjing today. “That’s going to damp metals demand, especially from speculators.”

Imports of copper and products by China, the world’s largest consumer, gained 10 percent in February from a month earlier, according to customs data yesterday. Production of the metal climbed in the first two months from a year earlier.

“The increase in imports will curb prices,” Zhao Kai, an analyst at Jinrui Futures Co., said from Shenzhen today. February’s import figure of 322,282 tons of copper and copper products implied refined shipments of 230,000 to 240,000 tons, according to Jinrui.

A stronger dollar’s also helped to curb metal prices, said Zhu Yanzhong, another Jinrui analyst. The U.S. currency gained 0.2 percent to 80.55 today against an index of six major counterparts after weakening yesterday.

Still, copper may rise to a record this year, possibly surpassing $9,000 a ton, driven by larger-than-expected imports by China and a revival of demand in Europe and the U.S., according to Jeremy Goldwyn at Sucden Financial Ltd.

Aluminum in London fell 0.7 to $2,216 a ton, zinc fell 1.8 percent to $2,332.25 a ton, lead decreased 0.9 percent to $2,267.75 and nickel dropped 1.3 percent to $21,250. Tin hadn’t traded as of 3:05 p.m. in Shanghai.

--Li Xiaowei. Editors: Jake Lloyd-Smith, Matt Oakley

To contact the Bloomberg News staff on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net