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Copper Drops for Second Day as Rally Discourages Chinese Buying

Copper Drops for Second Day
A trader gestures while on the floor of the London Metal Exchange in London. Photographer: Chris Ratcliffe/Bloomberg

Copper declined for a second day in London as the metal’s rally to a record deterred purchases in China, the largest user. Zinc and tin also fell.

Three-month copper on the London Metal Exchange dropped as much as 0.9 percent to $9,266.25 a metric ton and traded at $9,326 at 3:14 p.m. in Singapore. The contract fell for the first time in four days yesterday, after reaching a record $9,392 a ton on Dec. 21.

“We’re bound to see demand destruction from price-sensitive Chinese buyers, more so because we’re currently in the slow-consumption season,” said Yang Jun, a Beijing-based analyst at Hongyuan Futures Co.

Futures on the Comex in New York fell as much as 0.9 percent to $4.238 a pound after reaching a record $4.2965 yesterday. The metal for March-delivery on the Shanghai Futures Exchange ended the day little changed at 68,660 yuan ($10,336) a ton after fluctuating between gains and losses.

Inventories monitored by the London Metal Exchange rose for the eighth consecutive session yesterday to the highest since Nov. 10. Stockpiles monitored by the Shanghai Futures Exchange gained 10 percent to a six-month high last week.

Copper stockpiles in LME warehouses may gain through Lunar New Year in February as traders in China re-route metal previously intended for imports because of ample local supplies and slow seasonal demand, Sucden Financial Ltd. said earlier this month. The week-long Chinese holiday, when many plants suspend output, runs from Feb. 2.

Copper Shortfall

The International Copper Study Group is expecting a 435,000-ton global deficit in the refined metal next year, prompting analysts including those at Goldman Sachs Group Inc. and Standard Chartered Plc to call for higher prices in 2011. Jeremy Gray, Standard Chartered’s global head of equity research for resources, forecast in an August report that copper may rise to $12,000 a ton in the next two years.

“While the longer-term fundamentals are supportive of prices, I do think investors outside of China are being a bit too optimistic about China’s demand going forward,” said Yang. “What the government does to fight inflation remains a wild card for the market.”

Consumer prices in China jumped 5.1 percent last month, the fastest rate in 28 months, prompting speculation that China may step up measures to curb lending and raise interest rates. Policy makers have this year increased lenders’ reserve requirements several times and introduced real-estate curbs in an effort to rein in credit and speculation.

Aluminum and nickel in London were little changed at $2,460 a ton and $24.040 a ton, respectively, and lead was unchanged at $2,440 a ton. Zinc fell 0.4 percent to $2,319.75 a ton and tin slipped 0.3 percent to $26,750.

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