Shanghai Copper Slumps to Eight-Month Low on Demand Concern

By Li Xiaowei

Aug. 12 (Bloomberg) -- Copper futures extended their slump to an eight-month low in Shanghai amid concern that Chinese demand is slowing. London prices for the industrial metal also declined to the lowest since February.

Copper imports by China, the world's largest user, fell 12 percent in the first seven months from a year ago, customs data showed yesterday. Still, July imports rose 7 percent from the prior month.

The year-on-year decline in imports ``exacerbated investors' concern for Chinese demand,'' Wang Lei, an analyst at Haitong Futures Co., said in an e-mailed report today. The drop in Shanghai copper was widening the price gap with London which recently narrowed, Wang added.

Copper for October delivery fell as much as 2.3 percent to 55,900 yuan ($8,143) a ton on the Shanghai Futures Exchange, the lowest since December 2007. The contract traded at 56,690 yuan at the market's midday break.

Open interest surged to more than 190,000 contracts this week, the highest since January, Wang said in the report. Rising open interest combined with falling prices indicates traders and investors may be establishing short positions, or bets prices will drop.

Copper for delivery in three months fell 0.4 percent to $7,300 a metric ton on the London Metal Exchange at the same time. It dropped as low as $7,260 earlier, 19 percent below the record $8,940 set July 2, as the dollar rallied, curbing demand for raw material investment.

Monetary Policy

China's inflation cooled for a third month on slower food- price gains, a report from the statistics bureau showed today. That gives the government more room for measures to boost economic growth. The country has already loosened bank lending quotas, raised tax rebates for some exports and halted the yuan's appreciation against the dollar.

China, the world's fourth-biggest economy, had been tightening bank credit to cool over investment and inflation. The credit tightening would cause a 10 percent cut in Chinese consumption of copper, according to Maike Metal International Group, China's largest importer of the metal.

``Further loosening in government policies, which is likely to occur after the Olympics, will immediately help commodities markets rebound,'' Haitong analyst Li Jingyuan said by phone from Shanghai today. ``Copper looks to be oversold anyway,'' Li added.

Among other LME-traded metals, aluminum was little changed at $2,834 a ton, zinc fell 0.9 percent to $1,675, nickel fell 0.6 percent to $17,900, and tin was up 0.3 percent at $18,800. Lead was untraded in Asia after settling at $1,925 yesterday.

To contact the reporter for this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net