Copper, Zinc Plunge Limit in Shanghai on China Tightening Risk

Nov. 17 （Bloomberg） -- Copper and zinc futures tumbled as much as 5 percent in Shanghai, the maximum allowed by the bourse, after metals in London slumped the most in more than six months yesterday on speculation China, the biggest consumer, will take steps to cool inflation, curbing demand.

Copper for February delivery on the Shanghai Futures Exchange dropped the limit to 61,550 yuan （$9,259） per metric ton before trading at 61,930 yuan a ton at 10:56 a.m. local time. Zinc for March delivery fell to 17,815 a ton. Three-month copper on the London Metal Exchange gained 0.6 percent to $8,198.75 a ton after declining 5.7 percent yesterday.

The LME index, comprised of six industrial metals, slumped the most since May 4 yesterday as zinc plunged 8.5 percent, the biggest drop in six months. China’s inflation climbed to 4.4 percent in October, the fastest pace in two years, prompting speculation that the government will raise interest rates.

“The precipitous fall indicates investors have become increasingly risk-averse, as the strong rally in the past few months seems vulnerable, given probable tightening measures in China,” Wang Ning, an analyst at Xiangyu Futures Co., said by phone from Shanghai.

Chinese Premier Wen Jiabao said the cabinet is drafting measures to counter excessive price gains. The comments, broadcast last night local time on state television, suggested the government would intensify efforts to cool inflation.

“What I’ve seen was a lot of liquidation of long positions as investors retreat from the market and wait until they get a clearer macro picture,” Wang said.

Rate Speculation

Investor confidence was also dented by discussions between Ireland and European and International Monetary Fund officials over a bailout that would enable the country to inject capital into the country’s banks.

Copper futures in Shanghai declined 10.4 percent in the past four sessions, heading for the biggest four-day slide since December 2008. Zinc slid 15 percent in the period, and was poised for the largest drop since November 2007.

China’s central bank may raise rates as soon as Nov. 19 because of sustained inflationary pressure, the China Securities Journal said today. Earlier announcements also indicate that rate decisions are often released on Fridays or around the 20th of the month, the newspaper reported.

Stocks in China declined, with the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, falling 0.9 percent to 2,870.30 at 11:12 a.m. today.

Aluminum in London gained 1 percent to $2,265 a ton, zinc was little changed at $2,139 a ton, and lead dropped 0.4 percent to $2,246 a ton. Nickel climbed 2.6 percent to $21,350 a ton, and tin fell 0.5 percent to $24,400 a ton.

--Helen Sun. Editor: James Poole