By Polly Yam
HONG KONG, Aug 26 (Reuters) - China's move to tighten bank credits is likely to cool down the hot property and car sectors, slowing growth in demand for copper, aluminium and steel, traders and analysts said on Tuesday.
China's central bank said on Saturday it would raise reserve requirements for banks and other deposit-taking institutions to seven percent from six, effective September 21. The move may drain 150 billion yuan ($18 billion) from commercial lenders.
"It will certainly have an impact on copper and aluminium demand," said a metals analyst in China. "Strong demand from the property sector has supported copper and aluminium in the first half."
Analysts in China said Beijing's move, part of a broader effort to soak up money supply amid fears of economic overheating, could lead to local banks reducing lending for deluxe property projects, or raising rates on mortgages for non-first homes or on car loans.
However, the central bank said the move would not lead to a decline in lending in the second half of this year. It also pledged to keep deposit and lending rates stable.
Andy Xie, an analyst for Morgan Stanley in Hong Kong, said the only sector that would be significantly affected by the tightening would be investments in cyclical industries and property.
"Some of the industries that have benefited most from the current investment boom would suffer more. They include steel, chemical, and construction materials in general," Xie said in a research report on Monday.
CONSTRUCTION AND CARS
Base metals markets are highly exposed to economic activity in China, where rapid growth -- fuelled largely by a boom in the automotive and construction sectors -- has attracted big imports of raw materials.
Analysts in China estimated the property sector accounted for as much as 20 percent of China's total copper demand, and more for aluminium. They could give no prediction for any possible slowdown in consumption resulting from the central bank move.
The government also aims to cool down the booming car sector which is expected to see output doubling to two million units in 2003 from 2002.
A report published last week by the National Development and Reform Commission urged the sector not to expand capacity blindly. It is a major user of aluminium and galvanised steel.
China's second largest copper producer, Jiangxi Copper Co Ltd , said in its interim report released last week the country's refined copper output had risen by 10.5 percent in the first half and consumption growth had surpasssed the output growth.
The chairman of Aluminium Corp of China Ltd , the country's largest aluminium producer, said last month that the country's aluminium demand would jump by more than 26 percent to 5.2 million this year after a similar rise in the first half.