Copper Declines on Stockpile Increase, China Tightening Concerns

Dec. 16 （Bloomberg） -- Copper declined for a third day in London as stockpiles expanded and amid speculation that China may raise interest rates again as it seeks to control inflation.

Inventories of copper tallied by the London Metal Exchange rose for a fourth day today, to the highest level since Nov. 17, exchange figures showed.

"If the trend continues, it will cause many to ask just how tight the market really is," Alex Heath, head of industrial-metals trading at Royal Bank of Canada Europe Ltd. in London, said today by e-mail. "Though I would personally be surprised if more than a dribble of material finds its way into sheds."

Copper for delivery in three months dropped $50, or 0.5 percent, to $9,045 a metric ton at 10:03 a.m. on the London Metal Exchange. The metal, up 23 percent this year, rallied to a record $9,267.50 on Dec. 14. Copper for delivery in March fell 0.1 percent to $4.1285 a pound on the Comex in New York.

"Profit-taking after a run like this is only to be expected, especially as we are coming up to the end of the week, Christmas and New Year period," Heath said.

The metal also declined as China's stocks fell for a second day, led by banks and metal producers, on concern the government's efforts to tame inflation will reduce earnings.

China's central bank may raise the cost of borrowing this month on concern negative real interest rates may spur bank deposit holders to search for higher yields, possibly fueling an asset bubble, Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd., said in a report dated today. The Asian nation may increase rates up to six times by the end of next year as inflation becomes more entrenched in the economy, according to Mizuho Research Institute Ltd.

'China Chattter'

"The China chatter has moved up a notch or two, however we think that a 0.25-point hike is largely factored in this time, with pretty much the whole market looking for another 0.50 in the first quarter next year," Heath said.

Stockpiles monitored by the LME have gained 3.5 percent to 360,800 tons in the past four days, exchange figures showed. Orders to draw copper from LME stocks, or canceled warrants, fell for the 12th day, dropping by 2.6 percent to 18,700 tons, the lowest level since Oct. 6.

Data today may show U.S. housing starts rose in November while more workers filed for jobless benefits last week, supporting the Federal Reserve's decision to maintain record stimulus measures to boost an economy that isn't growing fast enough to spur employment.

Aluminum Gains

Europe's services and manufacturing industries slowed in December as smaller euro-area nations failed to keep up with Germany's export-led expansion, data showed today. A composite index based on a survey of euro-region purchasing managers in both industries fell to 55 from 55.5 in November, London-based Markit Economics said today. Economists had expected a reading of 55.3, according to a Bloomberg survey.

Aluminum gained 0.4 percent to $2,330 a ton as Tokyo-based research company Market Risk Advisory said the metal may advance as much as 29 percent to $3,000 a ton next year.

Aluminum may sell for between $2,400 and $2,500 a ton next year, supported in part by a weakening dollar and the start-up of funds that may hold as much as 3 million tons of the metal for investment purposes, according to United Co. Rusal, the world's biggest producer. Aluminum stocks in LME warehouses will remain "stable" as most of the metal there is covered by financial transactions until the end of the year, Rusal said.

Tin for three-month delivery on the LME rose 0.5 percent to $25,950 a ton and zinc gained 0.1 percent to $2,259.25 a ton. Nickel lost 0.3 percent at $24,481 a ton, while lead fell 0.7 percent to $2,408 a ton.