SINGAPORE, Jan. 13 -- Copper dropped for a second day to a two-week low on concern China's move to rein in liquidity may decrease demand for raw materials in the world's largest metals user. Aluminum, lead and nickel also declined.
China's central bank yesterday raised the proportion of deposits that banks must set aside as reserves by 50 basis points starting Jan. 18. This follows earlier moves to curb lending by guiding three-month and one-year bill yields higher for the first time since August 2008. China's record bank loans and $586 billion stimulus spending helped copper prices more than double last year.
"It's a knee-jerk reaction as these moves came earlier than expected," Yu Mengguo, senior analyst at Jinpeng International Futures Co., said from Beijing. "In the longer term, this could be positive for the market in terms of keeping inflation and overheating in check."
Copper for delivery in three months on the London Metal Exchange fell as much as 2 percent to $7,305 a metric ton, the lowest price since Dec. 30, and traded at $7,415 at 11:02 a.m. in Singapore. The contract fell as much as 3.3 percent yesterday, the biggest intraday drop since Oct. 13.
March-delivery copper on the Comex division of the New York Mercantile Exchange gained 0.6 percent to $3.3695 a pound, after falling as much as 1 percent earlier. The April-delivery contract on the Shanghai Futures Exchange dropped as much as 4.8 percent to 58,770 yuan ($8,608) a ton, the lowest for a most- active contract since Dec. 30.
The dollar's rebound against a basket of six major currencies also weighed on metal prices. The dollar index rose for the first time in four days after Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank must increase interest rates "well before" unemployment falls to an acceptable level.
Aluminum in London fell as much as 1.2 percent to $2,253 a ton, extending yesterday's 2.1 percent drop, while the metal dropped by the exchange-imposed daily limit in Shanghai.
"Aluminum has been rising alongside copper, partly supported by concerns about supply as power gets disrupted by the bad weather," said Yu. "However one mustn't forget the 4 million tons of metal sitting in warehouses." Inventories of aluminum in warehouses monitored by the LME reached a record 4.64 million tons on Dec. 18.
Alcoa Inc., the largest U.S. aluminum producer, expects earnings to improve this year as global demand for the light metal increases 10 percent this year, led by China, its chief financial officer Charles McLane said yesterday. This comes after the company's quarterly earning trailed estimates.
Among other LME metals, lead lost 0.5 percent to $2,420 a ton, nickel declined 0.9 percent to $17,550 a ton, and tin fell 1.1 percent to $17,700 a ton. Zinc was little changed at $2,483 a ton by 11:14 a.m. in Singapore.
The slump in metals prices triggered losses in related equities. The MCSI World/Materials Index, a measure of mining and chemical companies, dropped for a second day to the lowest in a week.
BHP Billiton Ltd., the world's biggest mining company, fell as much as 1.4 percent on the Australian stock exchange, extending yesterday's 2.2 percent drop. Jiangxi Copper Co., China's largest copper producer, lost as much as 4.4 percent on the Shanghai Composite Index.