Shanghai copper up 1.3 pct on brighter LME outlook

Shanghai copper futures rallied 1.3 percent on Thursday, recovering from early losses on brighter technical prospects for London futures.

The most active March contract gained 700 yuan, or 1.3 percent, to 53,550 yuan ($6,889) a tonne by the close on Thursday.

Spot copper prices in Shanghai were up 125 yuan, quoted between 55,250 yuan and 55,600 yuan.

“There is more room for copper to rise than fall in Shanghai and London. We see support below $5,500 on the LME,” a futures trader in Shanghai said.

Copper for delivery in three months on the London Metal Exchange was up $40 at $5,690 a tonne at 0707 GMT.

However, Shanghai dealers remained cautious, with international merchants scouring Asia for copper to ship to China, which would weigh on the strong domestic market.

A European physical trader said: “The arbitrage is very attractive and stock is going to go to China. Once the Lunar New Year has gone, most of the metal in Asia is likely to be heading to China.”

On Wednesday, LME copper stocks in South Korea, one of the closest LME warehouse locations to China, totalled 37,125 tonnes, of which 16,650 tonnes or 44 percent are on cancelled warrant and are earmarked for delivery.

Global LME stocks stand at 199,125 tonnes and the ratio of cancelled warrants is 12 percent.

In a note, Standard Bank London said it saw support for copper at $5,500.

“We expect downside moves to remain well contained compared to previous moves. Many will look to the $5,500 level to provide near-term support with a breakthrough there triggering a more bearish technical view.”

LME nickel rallied in electronic trading to a record peak of $35,975, equivalent to over $1 an ounce, and at 0745 GMT was at $35,800 a tonne, from $35,500 on Wednesday.

“You might not see nickel engagement rings and earrings, but prices are at an interesting threshold,” Australia and New Zealand Bank analyst Andrew Harrington said.

“In the immediate future, we will see continuing strong prices supported by low inventories. Also stainless steel makers have been sitting to one side, waiting for prices to come down. That could be a very unsuccessful strategy and we may see even stronger prices.”

Uncancelled nickel warrants totalled 4,428 tonnes, equivalent to over a day of world consumption.

March Shanghai aluminium futures fell to 19,550 yuan from 19,430 yuan, but LME aluminium gained $12 to $2,690.

Aluminium stocks rose by 12,625 tonnes to 714,025 tonnes as metal flowed into warehouses attracted by the steep cash-to-three months backwardation.

Premiums for cash metal above the three-month price hit $120 on Monday, up from $30 at the start of 2006 and the highest since 1990.

On Thursday, the cash-to-three-month spread was $105/120.

“The aluminium market looks set to get even tighter over the next three weeks,” Sempra Metal economist John Kemp said in a note.

He pointed out large-scale call options for February at $3,100.