Codelco Says China Curbs May Cap Demand Growth at 8% (Update1)

Aug. 5 (Bloomberg) -- Codelco, the world's largest copper producer, said measures by the Chinese government to prevent overheating in the economy will cap annual demand growth for the metal in the nation at 8 percent.

Consumption growth in the world's largest copper consumer may stay at that rate for the next few years, Rodrigo Toro, corporate senior sales vice president, told reporters at the World Expo in Shanghai. The government measures are a "good thing to happen," he said.

Steel and copper demand in China has slipped as the government tightened real-estate lending and cracked down on speculation since mid-April. The weakest manufacturing data in more than a year for July indicates the world's largest exporter is having a "slowdown not a meltdown," according to HSBC Holdings Plc economist Qu Hongbin.

"The Chinese authorities have implemented measures to control inflation," Toro said. "The way to control inflation is to try limit GDP growth. It will have an effect on copper demand. We're happy to see demand in China grow at a very healthy rate."

Copper futures in London fell 0.7 percent to $7,451 a metric ton at 12:09 p.m. local time.

Stress Tests

China's banking regulator told lenders to include worst- case scenarios of property prices dropping 50 percent to 60 percent in cities where they have risen excessively, a person with knowledge of the matter said. Previous stress tests carried out assumed home-price declines of as much as 30 percent.

Property stocks fell the most in three weeks in Shanghai today and bank shares slid as the test assumption signaled the government may be growing more concerned about the health of the real estate market.

"Industries related to property development and raw materials used in construction will all be affected," Wang Xiaoli, an analyst at Citic Futures Co., said from Shenzhen on the Chinese measures. "It's not that they think prices will drop by 60 percent, however it is a signal that there is still room to cool the property market."

Codelco Chief Executive Officer Diego Hernandez today reiterated comments that the market may remain volatile. Still, Toro said the company expects global demand growth of 4 percent for the year, and for copper prices to remain at a high level. He didn't give a specific price forecast.

Globally, "we see a very strong copper market in 2011," Toro said. "China will keep going at a controlled growth. Perhaps European demand will be a bit higher next year."

Premiums charged to customers will likely go up, based on current market conditions, Toro said. Processing fees for smelters are likely to remain low for "quite some time," as demand for concentrates will exceed supply, he said.