Copper Rebounds From One-Week Low as Weaker Dollar Outweighs China Rates

Copper gained, rallying from a one- week low, as a weaker dollar outweighed China’s decision to raise borrowing costs for the first time since 2007. Aluminum, tin and zinc increased.

The metal for three-month delivery gained as much as 0.4 percent to $8,290 a metric ton, and traded at $8,274 at 1:48 p.m. in Singapore. Earlier, copper dropped as much as 1.1 percent to $8,170 a ton, the lowest level since Oct. 12, after China’s central bank announced yesterday that it will increase benchmark lending and deposit rates today.

“It’s not a big increase and is unlikely to have much impact except bring about a knee-jerk reaction, but it signals the government’s attitude toward wanting to rein in liquidity and fight inflation, rising property and food prices,” Zhang Yan, a trader at Jin Yuan Futures Co., said from Shanghai.

Copper for January delivery in Shanghai fell as much as 2.4 percent, the most since Sept. 30, to 61,900 yuan （$9,295） a ton, before trading at 62,560 yuan. December-delivery copper on the Comex in New York gained as much as 0.5 percent to $3.7770 a pound, after shedding as much as 1 percent earlier.

“Commodities prices will still be driven by the dollar and global economic conditions,” said Zhang. The dollar fell against a six-currency basket before the Federal Reserve releases its Beige Book regional business survey today that may show recovery slowed, backing the case for further credit easing.

The People’s Bank of China yesterday lifted the benchmark one-year lending rate to 5.56 percent from 5.31 percent, and increased the deposit rate to 2.5 percent from 2.25 percent. This comes before data tomorrow that economists forecast will show inflation accelerated to the fastest pace in almost two years in September.

Agriculture Rally

“Judging from the continued rally in agriculture and soft commodity prices last month, CPI is not likely to come in low tomorrow,” said Zhang, referring the China’s September Consumer Price Index figures. Corn, soybean and palm oil futures on the Dalian Commodity Exchange have climbed for three straight months. Cotton rose 19 percent last month and wheat gained 14 percent on the Zhengzhou Commodity Exchange.

China’s consumer prices probably climbed 3.6 percent in September from a year earlier and the economy grew 9.5 percent in the third quarter, according to median forecasts in a Bloomberg News survey.

The interest rate increase is “most negative” for the property sector and “broadly negative” for commodities, according to Jun Ma, Deutsche Bank AG’s chief China economist.

‘Policy Consensus’

“It is a very important signal that a policy consensus has been reached to tolerate lower GDP growth, and we believe it demonstrates the government’s determination to resolve the negative interest-rate issue and to use interest-rate policy to contain speculative property demand,” Ma wrote in a report.

China won’t change policies on property, local financing vehicles, energy saving and emissions-cutting in the short term, the report said, the Financial News reported today, citing central bank adviser Xia Bin.

Aluminum in London rose 0.2 percent to $2,361 a ton, and tin climbed 1.4 percent to $26,250 a ton. Zinc was up 0.1 percent at $2,395 a ton and lead was down 0.2 percent at $2,395 a ton. Nickel fell 0.2 percent to $23,430 a ton.