Copper, Zinc Lead Commodity Declines After China Increases Rate
April 27 (Bloomberg) -- Copper, zinc led a decline in commodities after China raised its key interest rate, prompting speculation increased borrowing costs will curb demand in the world's fastest-growing major economy.
Shares of mining companies such as Xstrata Plc and BHP Billiton also fell after China's central bank raised its one- year lending rate to 5.85 percent from 5.58 percent today, to curb surging investment. The nation's booming economy has fueled a three-year rally in raw materials and metals needed for factories, cars and appliances.
``There is the risk the investment boom in China turns to bust and that would have a knock-on effect on the rest of the world,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London. ``Higher rates may take off some of the froth from commodities markets which have benefited from the investment boom.''
Copper, which has doubled in the past year, dropped as much as 3.6 percent today. Zinc tumbled as much as 7.3 percent, its biggest decline since February. Oil, which has climbed 38 percent in the past 12 months, fell 1.3 percent. Gold and silver had their first declines in three days.
The rate increase will be effective from tomorrow, the People's Bank of China said in a statement on its Web site. The bank left the one-year deposit rate unchanged at 2.25 percent.
``This is an aggressive move,'' said John Kemp, an economist at Sempra Metals, one of 11 companies trading on the floor of the LME. ``There have been widespread concerns about rapid loan growth, over-investment and rapid GDP growth.''
`Take Out Pressure'
Copper for delivery in three months fell as much as $260 to $7,040 a metric ton and traded at that level as of 5:42 p.m. on the London Metal Exchange. Prices yesterday reached a record $7,385. Zinc was at $3,215 a ton after plunging as low as $3,115. Aluminum dropped 3.5 percent, or $98, to $2,740.
China's economy, the biggest consumer of most metals, grew 10.2 percent in the first quarter this year, President Hu Jintao said on April 16. Growth was 9.9 percent in all of last year.
``China's tighter monetary policy will hit demand and that will take out pressure on consumption side,'' said Michael Widmer, an analyst with Macquarie Bank Ltd. in London.
Shares of Xstrata, the world's biggest exporter of coal for power stations, fell as much as 121 pence, or 5.8 percent, to 1,960 pence in London, their biggest one-day drop since October 2004. The shares closed at 2,015 pence. BHP Billiton, the world's largest mining company, dropped 6 percent to 1,101 pence, before closing at 1,138.5 pence. Anglo, the second- largest, slid 5.6 percent to 2,281 pence.
`Going to Hurt'
``It's going to hurt the mining and energy companies that benefited the most from demand'' in China, said Richard Robinson, a Jersey-based fund manager at Ashburton Ltd., which oversees the equivalent of $1.8 billion. ``Investors are going to question whether these stocks are worth paying a premium for.''
Oil for June traded at $71.20 a barrel on the New York Mercantile Exchange after earlier falling as much as $1.03, or 1.43 percent, to $70.90.
Crude oil in New York rose to a record $75.35 six days ago amid concern militant attacks in Nigeria and tension over Iran's nuclear research program will limit supplies.
Silver futures fell 21.5 cents to $12.60 an ounce in New York after trading as low as $12.19. Gold for immediate delivery in London fell $1.95 to $636.65 an ounce.
To contact the reporter on this story:
Saijel Kishan in London at skishan@bloomberg.net
Last Updated: April 27, 2006 12:51 EDT
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