BLBG: Oil, Copper Lead Commodity Drop as China Seeks to Cool Growth
By Stuart Wallace and Chanyaporn Chanjaroen
Feb. 12 (Bloomberg) -- Crude oil and copper led the worst decline in commodities in a week as China, the world’s fastest- growing major economy, sought to cool growth.
The S&P GSCI Index of 24 raw materials retreated 1.7 percent to 493.2 as of 11:21 a.m. in London, the steepest drop since Feb. 5. Oil fell 2.1 percent in New York trading and copper slid 2.6 percent in London. Aluminum, wheat, gold and platinum also declined.
China, the world’s biggest copper consumer and second- largest oil user, ordered banks to set aside more deposits as reserves for the second time in a month after loan growth accelerated and property prices surged. Commodity markets have counted on China to prop up demand as developed economies recover from the steepest slump since World War II.
“This emphasizes the fact that China’s in a tightening mode,” said Bill O’Neill, a strategist at Bank of America Merrill Lynch’s Wealth Management Group in London. “I’d expect further measures. It’s going to lead to a weaker price environment for commodities.”
The reserve requirement will increase by 0.5 percentage point effective Feb. 25, the People’s Bank of China said on its Web site today. The current level is 16 percent for big banks and 14 percent for smaller ones. The central bank said yesterday it wants to gradually normalize monetary conditions from a “crisis mode” after gross domestic product expanded 10.7 percent in the fourth quarter from a year earlier, above estimates and the fastest pace in two years.
“Growth will be strong for the year, but the negative impact is likely for at least the first half,” O’Neill said.
Chinese Demand
Chinese demand accounts for 41 percent of the world total for cotton, 36 percent for lead, 35 percent for zinc, 33 percent for aluminum and 23 percent for soybeans, according to Goldman Sachs Group Inc. It’s 9 percent of the total for oil, the New York-based bank estimates.
Crude oil for March delivery fell as much as $1.72, or 2.3 percent, to $73.56 a barrel in electronic trading on the New York Mercantile Exchange.
Copper for three-month delivery lost as much as $219, or 3.2 percent, to $6,720 a metric ton on the London Metal Exchange. Aluminum retreated 1.7 percent to $2,021 a ton, zinc fell 2.8 percent to $2,118 a ton, and lead dropped 2.1 percent to $2,081 a ton.
“It’s taking everyone by surprise,” said Daniel Brebner, an analyst at Deutsche Bank AG in London. “It’s going to get everybody thinking how much more tightening will we see out of China, and how much the economy could slow. This will obviously impact industrial materials.”
Gold Declines
Gold for immediate delivery lost as much as $17.34, or 1.6 percent, to $1,078.06 an ounce in London. Silver fell 2.2 percent to $15.3112 an ounce, platinum dropped 2.2 percent to $1,496.75 an ounce and palladium shed 2.8 percent to $410.55 an ounce.
Precious metals declined as the dollar strengthened, diminishing their appeal as alternative investments. The U.S. Dollar Index, a six-currency gauge of the greenback’s value, jumped as much as 0.8 percent.
Wheat fell 2.1 percent to $4.8325 a bushel in Chicago, corn declined 1.2 percent to $3.705 a bushel and soybeans retreated 1.1 percent to $9.3275 a bushel.
To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net; Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net.
