Commodities take China tightening in stride

By Tom Miles

BEIJING (BestGrowthStock) – China’s latest move to mop up the excess cash that has helped fuel a commodity price rally in recent months is likely to make little impact on commodity markets, since many traders already anticipated such a step.

The People’s Bank of China said on Friday it would raise banks’ required reserves ratio by 50 basis points, effectively draining the pool of cash available for lending.

The move, the sixth RRR hike this year, came hours after China’s General Administration of Customs issued trade figures showing much stronger than expected imports and exports, pointing to a healthy economy that could absorb a bit more tightening.

The customs figures showed a big rebound in November in imports of major commodities such as copper, crude oil, soybeans and iron ore after a slow October, giving little evidence that demand has been weakened by the central bank’s monetary tightening.

Three-month copper on the London Metal Exchange jumped to a session high of $9,065 a tonne on Friday after the surprisingly bullish trade data, but pulled back to $9,047, still up 1.1 percent, after the RRR hike.

The PBOC’s move also came on the eve of a data release by China’s National Bureau of Statistics which will show November consumer price inflation.

“November’s CPI is due tomorrow and is rumored at 5.1 percent. The PBOC does not have an inflation target, but is historically uncomfortable with an inflation rate above 5.0 percent,” RBS China economist Ben Simpfendorfer wrote in a note to clients.

Jonathan Barratt at Commodity Broking Services in Sydney said the RRR hike was evidence of the bank finessing its policy.

“It’s interesting this came before the macro numbers. After the sneak peek we had from the trade data today it looks like we may see a blow-out.”

He said that might potentially weigh on commodities as investors could anticipate additional tightening measures by Beijing.

China’s government has pursued a vocal and active campaign to stamp out big rises in food prices, which make up one-third of the inflation basket.

Futures contracts such as sugar, soybeans and rapeseed oil have pulled back since the campaign began in earnest last month, with officials threatening to punish speculators and futures exchanges raising required margins.

But copper is still seen to be in strong demand in China, and copper futures have recovered strongly this month.

(Additional reporting by Nick Trevethan in SINGAPORE; editing by Keiron Henderson)

Commodities take China tightening in stride