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Easing predictions buoy SHFE copper

By Michael Bellart (Global Times)

08:58, August 10, 2012

Domestic commodity futures rallied Thursday after Chinese inflation fell to its lowest point in two and a half years, sparking speculation of imminent monetary stimulus that could spur commodities demand.

The most traded copper contract on the Shanghai Futures Exchange (SHFE) grew 0.84 percent to 55,160 yuan ($8,684.00) per ton. The November contract jumped Thursday after news hit that China's consumer price index (CPI) increased by a paltry 1.8 percent in July, down from 2.2 percent in the previous month.

"I thought the China inflation numbers were terrible," a Shanghai-based trader for an international firm told Reuters Thursday, "but many people were hopeful these will lead to more stimulus measures and therefore covered their short positions."

The three-month copper contract on the London Metal Exchange was trading at $7,565 per ton when the Chinese mainland markets closed, up 0.5 percent.

Financial market analysts from the Australian bank ANZ predicted that the low inflation would lead China's central bank to lower the reserve requirement ratio (RRR) - the amount of money domestic banks have to keep in reserve - as early as this month.

An RRR cut typically frees up bank capital that might end up invested in commodities - especially metals used in construction, such as copper.

The most active natural rubber contract added over 1 percent in a broadly positive day for Chinese commodity futures.

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