Copper eases after China loans data; inflation eyed

SHANGHAI: London copper fell by a third of a percent on Monday, after a slowdown in Chinese lending in May, illustrating the efficacy of Beijing's monetary tightening and accompanying risks to demand.

Chinese banks made loans of 551.6 billion yuan in local currency in May, missing market forecasts for 610 billion yuan, the People's Bank of China said.

Annual growth in China's broad M2 measure of money supply edged down to 15.1 percent in the month from April's 15.3 percent. The median forecast of economists was for a 17.1 percent rise in outstanding loans and a 15.4 percent increase in M2.

Three-month copper on the London Metal Exchange fell 0.3 percent to $8,910 at a tonne by 0551 GMT. Earlier copper dipped as low as $8,889.25, its weakest since May 25.

"The lower-than-expected loan data last month indicates that the central bank is maintaining its monetary stance and tightening steps are working well," said Qiu Jihua, analyst, Sealand Securities.

"Meanwhile, M2 also dipped, which means the room for further rises in interest rates or reserve requirements is smaller. Inflation is not the only factor the central bank takes into account when considering whether to raise interest rates or not. Although inflation is still quickening, the government must also stay vigilant on downside risks to the economy, including the risk of a hard landing."

In spite of the reduced risk of additional Chinese tightening, investors were cautiously pessimistic ahead of Tuesday's release of Chinese industrial output and consumer price index data and US inflation numbers.

The most-active August copper contract on the Shanghai Futures Exchange fell 1 percent to 66,950 yuan per tonne, chasing the previous session's losses on the LME of more than 1 percent, but maintaining the premium for benchmark London copper versus Shanghai around 600 yuan.

Prompt prices in Shanghai held their premium to the third month -- currently around 1,100 yuan, potentially encouraging some metal to enter China from the international market after disappointing imports in May.

"The continued backwardation in SHFE copper shows that investors are buying copper for prompt delivery but are wary about taking long positions," said Shanghai CIFCO Futures analyst Zhou Jie.

"The August contract price is falling as people are still anticipating an interest rate hike in China in the near term," he added.

Lending some support to copper prices was the continued supply disruption at Chile's El Teniente mine.

Output at the world's No. 5 copper deposit remained well below capacity on Sunday, as staffing was limited by renewed violence from striking contractors, mine owner Codelco said.

London lead prices fell 1.4 percent and the Shanghai equivalent also lost ground after news that lead pollution in eastern China seriously poisoned 103 children and affected hundreds of other residents.

This may prompt more efforts by the Chinese government to crack down on heavy metal polluters among industries such as lead consumers.

In industry news, commodities trader Glencore is considering making a 12 billion pound ($19.5 billion) takeover bid for ENRC, the Kazakh miner hit by a bitter boardroom battle, the Sunday Times reported.

ENRC produces copper, alumina, aluminium and ferroalloys, among other commodities.

Copyright Reuters, 2011