Copper Pares Second Weekly Gain on Commodity Financing Concern

Jun 26, 2014 10:53 pm ET

June 27 (Bloomberg) -- Copper fell, paring a second weekly advance, amid concern that demand to use metals as collateral for loans may decline in China and as a Federal Reserve official signaled U.S. interest rates could rise by March.

The metal for delivery in three months on the London Metal Exchange dropped 0.2 percent to $6,938 a metric ton at 10:01 a.m. in Hong Kong. Copper is up 1.7 percent this week.

China’s chief auditor found 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, while public security officials are also probing alleged fraud at Qingdao Port involving copper. Steps by the nation, the biggest metals user, to rein in credit by raising borrowing costs have created a surge in commodity financing deals that Goldman Sachs Group Inc. estimates to be worth as much as $160 billion.

“It’s got the markets thinking as to how broad and significant this fraud could be,” said Gavin Wendt, founder and senior resource analyst at Mine Life Pty in Sydney. “The big impact could potentially be on lending in China.”

James Bullard, president of the Federal Reserve Bank of St. Louis, said the U.S. economy is improving enough to withstand an increase in short-term interest rates next year as growth picks up. The U.S is the second-biggest copper user.

Copper in London rose to $6,955.15 a ton yesterday, the highest since May 28, and is set for the biggest quarterly rise since September as stockpiles fell and amid bets that the U.S. economy will rebound from a first-quarter contraction. Inventories monitored by the main exchanges in London, Shanghai and New York have plunged to the lowest since 2008.

In New York, futures for September delivery fell 0.1 percent to $3.168 a pound, ending the longest rally since 2005. In Shanghai, the metal for delivery in the same month slipped 0.2 percent to 49,510 yuan ($7,957) a metric ton.

On the LME, lead fell, while aluminum, zinc and nickel were little changed. Tin had not traded.