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Commodities Snap 4-Day Advance on Fed Speculation, China Credit

Commodities Snap 4-Day Advance
Metals traded on the London Metal Exchange declined today partly on concern that the credit-tightening policy in China, the largest user of copper and aluminum, may curb demand growth. Photographer: Chris Ratcliffe/Bloomberg

Commodities snapped a four-day winning streak, led by declines in silver and copper, on speculation the Federal Reserve may end its bond-buying program and as China was said to be tightening its credit policy.

The Standard & Poor’s GSCI Index of 24 raw materials lost as much as 0.9 percent to 745.49, the biggest intraday loss since April 19. The index was 0.2 percent lower at 751.12 at 12:47 p.m. London time. Silver fell as much as 5.4 percent and copper slumped 2.5 percent.

The Fed begins its two-day meeting today and is expected to say tomorrow it will conclude its second round of quantitative easing, known as QEII, through June to support the economy.

“There’s uncertainty from the U.S. monetary policy,” Dominic Schnider, an analyst at UBS AG in Singapore, said today by phone. “Keep in mind that it has been the QEII that pushed commodity prices.”

The Standard & Poor’s GSCI index has rallied about 37 percent in the past year, buoyed partly by U.S. monetary policy, which helped drive growth and spur demand from investors and industrial users. Copper, gold, silver and rubber rallied to records this year and oil climbed to more than $100 a barrel for the first time since the financial crisis in 2008.

The U.S. central bank will leave its target rate for overnight lending between banks at zero to 0.25 percent tomorrow, according to all 82 economists in a Bloomberg News survey.

China Tightening

China’s banking regulator set capital targets for the nation’s five biggest lenders above the minimum 11.5 percent ratio last month amid concern that credit risks may rise, three people with knowledge of the matter told Bloomberg News.

The move added to measures China’s policy makers have taken to curb loan growth and slow inflation. Metals traded on the London Metal Exchange declined today partly on concern that the credit-tightening policy in China, the largest user of copper and aluminum, may curb demand growth.

Copper for three-month delivery dropped as much as 3.3 percent, the most since March 9. Futures caught up with losses in New York and Shanghai after the London exchange resumed trading today after a two-day holiday. Zinc fell as much as 4.7 percent to $2,249 a ton, also the most since March 9.

“Market sentiment has been dented all around by the ongoing efforts of the Chinese government to rein in liquidity and cool the economy,” said Shi Hai, an analyst at Shanghai Tonglian Futures Co.

Oil Supply

The Dollar Index rose as much as 0.5 percent today against a basket of six major currencies. The index has lost 9.3 percent in the past year.

Oil for June delivery was down 9 cents at $112.19 a barrel on the New York Mercantile Exchange.

Saudi Arabia, the world’s largest oil exporter, is not comfortable with prices and is committed to keeping aside a “sizable cushion” of spare capacity, Saudi Aramco Chief Executive Officer Khalid al-Falih said in Seoul today.

Consumers needn’t be concerned by high crude prices because spare capacity can “moderate” the market, said al-Falih, who is in South Korea for a board meeting this week.


“Oil remains about $15-a-barrel above fundamentally supported levels, but should remain elevated, with risks on supply likely to persist,” Jeremy Friesen, a commodity analyst at Societe Generale SA in Hong Kong, said today.

Commodities were falling today because of “nervousness about what the Fed will do” and concerns about global economic growth, he said.

Gold lost as much as 0.8 percent to $1,495.75 an ounce after climbing to a record $1,518.32 yesterday. Silver fell as much as 4.8 percent to $44.6625, the most since March 15, after climbing to an all-time high of $49.79 yesterday.

Wheat fell as much as 3.2 percent to $8.3375 a bushel in Chicago and corn declined as much as 1.5 percent to $7.5675 a bushel.

-- With assistance from Glenys Sim in Singapore. Editors: Matthew Oakley, Jake Lloyd-Smith

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