Copper, Zinc Futures Plunge Limit in Shanghai on China Outlook

By Glenys Sim

Oct. 21 (Bloomberg) -- Copper and zinc tumbled by the exchange-imposed daily limit in Shanghai after China's economy expanded at the slowest pace in five years, potentially reducing demand from the world's largest consumer of copper.

Economists including those at China International Capital Corp. and JPMorgan Chase & Co. trimmed forecasts for China's growth this year to below 10 percent. A ``general pessimistic outlook in the country'' will continue to weigh on prices, said Great Wall Futures Co. analyst Li Rong.

``We're starting to see cases of importers and fabricators canceling some long-term contracts after prices fell so much in the past few weeks,'' said Huang Shoufeng, an analyst at Jinrui Futures Co. ``They are also not willing to take delivery on inventory which may build up if demand continues to weaken.''

Copper for January delivery on the Shanghai Futures Exchange dropped by 1,550 yuan, or 4 percent, from the previous settlement price, to 37,160 yuan ($5,437) a metric ton, and ended the day at 39,970 yuan. The metal has slumped 35 percent this year.

Three-month delivery copper fell as much as 2.2 percent to $4,615 a ton on the London Metal Exchange at 3:03 p.m. Singapore time.

Chinese copper importers pay a 20 percent deposit on their orders, and now that prices have fallen by more than that amount, some are choosing to forego the metal instead of purchasing it at previously agreed high prices, according to Pang Ying, an analyst at Shenzhen Rongtuo Trading Co.

Zinc Declines

January-delivery zinc in Shanghai also fell by its limit to 10,210 yuan a ton, and three-month zinc on the LME was down 0.4 percent at $1,200 a ton at 3:04 p.m. Singapore time.

``It is possible that zinc inventories could once again build as operators put material into a market that doesn't really need it or want it,'' Michael Jansen, JPMorgan Securities Ltd.'s London-based analyst, said in an e-mail yesterday. Jansen expects zinc supply to exceed demand by 400,000 tons next year.

Stockpiles of the metal used to galvanize steel stood at 170,050 tons yesterday, nearly three times the amount a year ago.

Among other LME-traded metals, aluminum was 0.4 percent lower at $2,122 a ton, lead fell 2.1 percent to $1,390, nickel lost 0.7 percent to $10,480, and tin fell 2.6 percent to $12,000.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net