Copper Declines as China Banking Curbs Spark Demand Concern

Jan 07, 2014 10:59 am ET

Jan. 7 (Bloomberg) -- Copper fell for the third time in four sessions in New York on concern that new financing rules may curb demand in China, the world’s biggest user of the metal.

China’s Cabinet imposed new controls on shadow finance, the multi-trillion-dollar lending that operates outside of the country’s banking system, according to three people familiar with the matter. Some copper is used in the Asian nation as collateral to back loans.

“While the move is designed to bring shadow banking out of the shadows, we suspect it will also ration the amount of credit,” Edward Meir, an analyst at INTL FCStone in New York, wrote in a report today. “We will have to see how all this plays out, but this may be a significant development.”

Copper futures for delivery in March declined 0.3 percent to $3.3505 a pound at 10:56 a.m. on the Comex in New York. The metal lost 0.9 percent last week.

The new rules in China include a ban on transactions designed to avoid regulations, such as moving interbank loans off balance sheets to reduce reported levels of lending, said the people.

“There will be a further clampdown in China on shadow banking,” William Adams, head of research at Fastmarkets.com in London, said by telephone. “That will mean less copper is used or tied up in that activity.”

Global production of refined metal will exceed demand by 398,000 metric tons this year, swinging from a 108,000-ton deficit in 2013, according to Credit Suisse Group AG.

Stockpiles monitored by the London Metal Exchange, at the lowest since last January, slid 0.9 percent to 353,075 tons.

On the LME, copper for delivery in three months slipped less than 0.1 percent to $7,322 a ton ($3.32 a pound). Aluminum, lead, nickel and tin fell in London. Zinc rose.

--With assistance from Jae Hur in Tokyo and Agnieszka Troszkiewicz in London. Editors: Thomas Galatola, Millie Munshi