Copper Drops in London on Concern China Bank Tests Signal Demand to Fall

Copper declined on concern China’s property market may slump further, reducing demand for the metal, after banks were ordered to conduct more stress tests to gauge the effect of a price drop of as much as 60 percent.

The metal for three-month delivery fell as much as 1 percent to $7,430 a metric ton on the London Metal Exchange, and traded at $7,441 at 2:57 p.m. in Shanghai. The contract yesterday hit $7,527 a ton, the highest since April 27, prompting some investors to lock in gains.

China’s banking regulator told lenders last month to assess the impact if property prices drop 50 percent to 60 percent in cities where they have advanced excessively, a person with knowledge of the matter said, declining to be identified because the regulator’s requirement hasn’t been publicly announced.

“If it’s true, the news will have a negative impact on the market as it could signal the government’s expectations for further property price falls,” said Fang Junfeng, an analyst at China International Futures (Shanghai) Co. China is the world’s largest consumer of copper, used in construction and home appliances.

Banks were also told to stress test loans to industries including steel, cement, construction materials and home appliances that are related to housing, the person said.

Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.

‘Not Likely’

Still, “a property price slump of 50 percent isn’t very likely,” said Zhu Bin, president of futures research at Nanhua Futures Co., said from Hangzhou. Market sentiment is positive overall and negative news has been shrugged off recently, Zhu said.

Copper for November delivery in Shanghai dropped 0.5 percent to close at 57,400 yuan ($8,474) a ton.

“LME copper increased from $6,500 to $7,500 since late July, so it’s a good time to lock in the gains,” Zhu said.

Aluminum in London fell 0.4 percent to $2,219 a ton. Zinc declined 0.7 percent to $2,105.75, lead dropped 0.9 percent to $2,223 a ton. Nickel lost 0.3 percent to $21,888 a ton and tin was little changed at $20,270 at 2:58 p.m. in Shanghai.

--Helen Sun. With assistance from Glenys Sim in Singapore. Editors: Richard Dobson, Ravil Shirodkar.

To contact the Bloomberg News staff on this story: Helen Sun in Shanghai at hsun30@bloomberg.net

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