Shanghai copper rallies 2.2 pct, LME firm

Shanghai copper futures rallied over 2 percent on Wednesday, supported by investor belief that prices could bounce following a three-day slide that sent them tumbling by more than 10 percent.

The most active March contract was 2.2 percent higher at 54,570 yuan ($6,992) at the close of trade, versus 53,410 on Tuesday.

“Some traders in Shanghai are hesitating to sell into this rebound and are looking forward to a further upward move,” said Cai Luoyi, analyst at China International Futures in Shanghai.

“Additionally, from the smelters’ side, they are not willing to sell at the recent lower prices as lower smelting fees mean they have to sell at higher prices to make a profit.”

Spot copper prices in Shanghai were up 1,225 yuan, and quoted between 56,750 yuan and 57,100 yuan.

London Metal Exchange copper futures for delivery in three months were at $5,720 a tonne, up 1.7 percent from $5,625 at the close on Tuesday.

“There has been a bit of a bounce, but the market doesn’t seem to like these higher numbers and we could see another pull back,” an LME dealer said.

LME copper has lost more than 10 percent since the start of 2007.

“Nothing has changed fundamentally, but the indices have been re-jigged so some money has been moving away,” a second LME dealer said.

The Dow Jones AIG index is rebalancing and the fund is expected to sell some of the futures contracts of the better-performing commodities in 2006. [ID:nL02923885]

“I think these prices represent good buying opportunities for those who track fundamentals,” the second LME trader added.

Copper stocks in LME-monitored warehouses were down 2,300 tonnes on Tuesday at 193,475 tonnes, but at just under four days of world consumption, the market remains vulnerable to supply disruption.

Chilean state-owned miner Codelco said it was working to reduce the threat of rockslides at its 570,000 tonne-per-year Chuquicamata mine. An area of the mine has been off limits since early December due to the risk of a rockslide. [ID:nN09204702]

A slide at Freeport McMoRan’s Grasberg mine in Indonesia in late 2003 saw output at the mine fall by a third in 2004 to 516,400 tonnes.

ALUMINIUM DEMAND

The most active March Shanghai aluminium contract was 1.3 percent up at 19,970 yuan from 19,710 on Tuesday.

LME aluminium gained $25 to $2,680.

The premium for cash metal above the three-month price was $60/65 a tonne, the highest since October 2004.

“It seems that spot aluminium on the LME is tight, but the stability in Shanghai futures suggests that the tightness is not impacting on the Chinese market,” a trader at an aluminium fabricator in northern China said.

On Tuesday, Alcoa Inc. said demand for aluminium, especially by the aerospace segment, should stay strong in 2007.

Alain Belda, Alcoa’s chief executive officer, said he expected China’s consumption to increase by 14 percent. [ID:nN09205048]

He added that U.S. demand would grow by more than 6 percent and European demand by more than 3 percent.

Zinc was $110 firmer at $3,630, but prices remain down 14 percent from the end of last year.