Commodities feel weight of China bank move

Commodities markets were hit by fears of suppressed demand yesterday, with copper falling to a 10-week low after China acted at the weekend to take some of the heat out of its rapidly expanding economy.

Chinese monetary authorities on Sunday announced they had tightened the amount required by state banks to be held in reserve by another 50 basis points to 17 per cent, marking the third such rise this year.

“The policy stance is likely to become more hawkish before we see signs of inflation peaking. Therefore, fear of further policy tightening is likely to weigh on markets for some months to come,” said Wensheng Peng at Barclays Capital.

China’s seemingly insatiable appetite for raw materials has driven commodity markets higher through much of the past year, in spite of economies in the US and Europe having only recently emerged from recession.

Copper, usually considered the benchmark for base metals, was driven up to two-year highs in mid-April on the back of surging demand from China.

But on London’s Metal Exchange it has fallen more than 7 per cent in the past three weeks on rising concerns over China’s moves to cool its economy and fears that the sovereign debt crisis in the eurozone will spread and damp demand.

Trade was closed on the LME yesterday for a public holiday, while the Shanghai exchange was also shut.

However, in electronic trade on New York’s Comex, copper was down 2 per cent to $3.2855 a pound, its lowest point since February 26.

Oil prices were supported by the oil spill in US Gulf of Mexico, as two offshore production platforms in the area were closed for safety reasons, and fears rose that shipping in the region might also be affected.

Signs of improving growth in the US and eurozone helped keep a floor under crude prices, following Friday’s gross domestic product data from the US and yesterday’s manufacturing report from eurozone purchasing managers. By Neil Dennis


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