China's Housing Market, Inflation Sway Copper Prices

By Shihoko Goto — Exclusive to Copper Investing News

Copper investors are taking their cues from China this week, as the government said it would provide financial aid to bolster affordable housing projects. Though prices are being boosted, a rise in Chinese inflation is putting downward pressure on the red metal as monetary easing becomes more difficult. There is disappointment too that Greek policy makers have been unable to reach an agreement on austerity measures, which would allow them to secure more bailout funds.

Meanwhile, mining giants are dominating the headlines, with Rio Tinto (LSE:RIO) posting a loss in the second half of 2011, and Glencore International (LSE:GLEN) possibly facing a heftier price tag for buying out Xstrata (LSE:XTA) than initially expected.

Earlier this week, China's Finance Ministry said that it would provide support to bring down housing prices, with revenue from local government bond sales as well as property tax revenue being used in part to foot the bill. Separately, Vice Premier Li Keqiang said at a regional conference that Beijing needed to ensure that affordable housing was distributed equally. The country aims to add 36 million units of affordable housing by 2015, and in 2011, it spent about $24.2 billion on building affordable homes. According to the Copper Development Association, Chinese builders account for over 40 percent of the red metal's use in the world's biggest copper-consuming nation.

Still, hopes for a resurgence in housing projects across China have been offset by worries about inflation rising in the country. The government reported Thursday that January's consumer prices rose 4.5 percent, up from 4.1 percent in December. Many investors have banked on Beijing to lower monetary policy in order to rev up the economic engine, especially after the International Monetary Fund warned this week that China's GDP expansion rate could nearly halve to 4 percent this year if Europe's economic outlook plummets, as Europe is China's biggest trading partner.

As a result, there is disappointment among copper traders that Greek policy makers were unable to agree on ways to meet bailout measures Thursday in order to avoid defaulting on debts.