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SHFE copper looks to fall on risk aversion

By Michael Bellart (Global Times)

08:41, July 23, 2012

Shanghai copper is set to tumble Monday following a plunge in international copper futures Friday as the global financial markets turned away from risky assets after Spanish bond yields jumped well above the sustainability threshold.

The benchmark three-month copper contract on the London Metal Exchange (LME) plummeted more than 2.5 percent Friday to close at $7,572 per ton. The contract had been on track for a modest weekly gain, but ended the week down 1.85 percent.

The most traded copper contract on the Shanghai Futures Exchange (SHFE) lost only 0.57 percent Friday to close at 55,910 yuan ($8,770.47) per ton. But because the SHFE closes early in the trading day, it will most likely plunge at opening to catch up with its LME counterpart.

The yield on Spain's 10-year government bond leapt nearly 26 basis points Friday to 7.267 percent. Typically, countries can no longer borrow sustainably once rates rise above 7 percent.

The change rattled the financial markets, with most major stock markets shedding 1 percent or more for the day.

Copper began its plunge after a heavily indebted region in Spain requested financial assistance, stoking fears among investors that the country is on the verge of asking for a national bailout, Reuters reported. Along with the rise in Spanish bond yields, the euro fell to a more than two-year low against the dollar.

In other commodities, West Texas Intermediate (WTI) crude oil for August delivery lost 1.3 percent Friday to close at $91.44 per barrel, even though the contract still managed to gain almost 5 percent for the week.

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