Shanghai. January 21(INTERFAX-CHINA) - Copper prices on the domestic and overseas markets may continue to slide before the Chinese Spring Festival holiday due to concerns over China's tightening monetary policy, which is likely to give impetus to downstream copper users to ramp up purchases, analysts told Interfax on Jan. 20.
"Recent market speculation that the Chinese government may further limit domestic credit is impacting copper prices on both the domestic and international markets. I expect copper prices on the Shanghai Futures Exchange (SHFE) to fall further and remain low at about RMB 60,000 ($8,788.38) per ton in the run up to the Spring Festival holiday in mid-February," Zhou Qian, an analyst from smm.cn, told Interfax.
According to China Securities Journal on Jan. 20, the central government has advised China's major commercial banks to stop offering loans for the rest of January in an effort to stem the country's credit growth rate.
The price of the most-traded SHFE copper contract closed 0.99 percent down at RMB 61,000 ($8,934.85) per ton on Jan. 20, while the price of the three-month copper contract on the London Metal Exchange (LME) closed down 2.25 percent at $7,357 per ton on Jan. 20.
On Jan. 18, China's central bank, the People's Bank of China, increased the bank reserve ratio by 50 basis points for the first time since June 2008.
"I expect from the second quarter of 2010, China will start increasing its bank interest rate to prevent inflation," Hubert Tang, an analyst from Union Bank of Switzerland, told Interfax previously.
"Some Chinese downstream copper users have made it clear that recent rapid copper price increases have caused them to delay purchases, thus I expect if copper prices witness corrections in the coming weeks, these copper users may kick off a phase of significant stockpiling," Zhou added.
The price of the most-traded SHFE copper contract rose by 18.64 percent from a recent low of RMB 53,480 ($7,833.37) per ton on Dec. 10, 2009 to a high of RMB 63,450 ($9,293.71) per ton on Jan. 7, 2010.
However, Zhou expects that copper prices on both international and domestic markets will maintain a general upward trend before the end of the second quarter of 2010 as China's copper demand will continue growing along with the economy.
He expects China's copper demand growth for 2010 will stay at 8 percent year-on-year, lower than the 15 percent growth recorded in 2009. "China's copper demand will continue to rise but the growth rate will be slower, as the country has plans to cool down investment in the power generation and real estate industries," Zhou added.
China has decided to reduce its investment in the power generation industry by 25 percent in 2010 from that in 2009, according to Zhou.