Copper, Zinc, Nickel Tumble as Inflation May Prompt Tightening

Copper fell to the lowest in more than a week on concern rising inflation will lead China and the European Union to tighten monetary policy, curbing demand. All other base metals except aluminum also declined.

Three-month-delivery copper dropped as much as 1.6 percent to $9,346.25 a metric ton on the London Metal Exchange, the lowest since Feb. 24. The contract traded at $9,448 at 4:30 p.m. in Singapore, extending a 4 percent slump yesterday. In Shanghai, May-delivery metal dropped 4.2 percent to 71,070 yuan ($10,820), the biggest decline for the most-active contract since Nov. 17.

Oil closed at a 29-month high in New York yesterday on concern Libyan violence would crimp Middle Eastern supplies. Government warplanes repeatedly bombed rebel positions near the oil hub of Ras Lanuf, adding urgency to discussions among U.S. and allied governments about imposing a no-fly zone.

“This kind of volatility is going to continue until the market has some clear sight on both oil-price elevation and on how long the impact of this oil price is going to be,” Peter Richardson, chief metals economist at Morgan Stanley in Melbourne, said today by phone. “The market believes there will be a negative impact on growth from a period of sustained oil prices,” he said.

Central banks are focusing more on inflation as the world economy gathers strength and food and oil prices surge. The People’s Bank of China raised reserve requirements twice this year and increased lending and deposit rates once as part of the government’s efforts to rein in rising home and food prices.

Interest Rates

Thailand and South Korea will raise key interest rates this week by a quarter of a percentage point, median estimates in Bloomberg News surveys of economists show. The People’s Bank of China raised interest rates three times since October and Premier Wen Jiabao has targeted inflation as the top priority.

A report today may show a rebound in German factory orders as European Central Bank policy makers consider raising interest rates to combat inflation.

“It was another shock about oil, causing growth expectations to be reduced,” said Dominic Schnider, director for wealth management research at UBS in Singapore. “At the end of the day, copper is the bellwether of the economy.”

Stockpiles tracked by exchanges in London, New York and Shanghai have climbed 16 percent this year to 660,456 tons as of yesterday, the highest level since July, according to Bloomberg data. Copper inventories in South Korea, the nearest LME- registered warehouse location to China, more than doubled this year to 102,225 tons.

China Imports

Imports by China last month probably fell 15 percent from January, and the recovery in demand may be delayed until late March, Dan Smith, a Standard Chartered Bank analyst, said in a report. Shipments probably fell to 210,000 tons, partly because of the Lunar New Year holiday and higher prices, he said.

May-delivery zinc in Shanghai fell 4.1 percent to 18,080 yuan a ton, the biggest daily drop since Nov. 23. The LME benchmark contract lost 0.9 percent to $2,348.25 a ton.

Nickel fell as much as 3.2 percent to $26,602 a ton in London, the lowest intraday price since Jan. 31. Tin shed 3.7 percent to $29,600 a ton, the lowest since Jan. 27. Aluminum added 0.2 percent at $2,564 a ton.(BLOOMBERG)