Shanghai copper steady, sheds early gainsadmin
Shanghai copper futures gave up early gains to close steady on Monday, as downbeat sentiment about the prospect of rising imports and supply vied with supportive spot market conditions.
The most active March contract in Shanghai was 0.2 percent higher at 54,120 yuan ($6,942) a tonne at the close on Monday, versus 54,020 yuan on Friday.
Dealers said an early rise, which saw prices up by over 1.5 percent, ran out of steam as buyers, worried by the likelihood of rising imports, backed off.
“Traders in Shanghai are wary to go long on copper, as they fear more imports of refined copper in the next few months,” said Cai Luoyi, an analyst at China International Futures in Shanghai.
Strong spot prices for copper in eastern China have supported Shanghai futures, but many traders expect that same strength to result in a rise in imports by 30 percent in the first months of 2007 from December.
Spot copper prices in Shanghai were down 300 yuan, quoted between 56,900 yuan and 57,200 yuan.
China imported 969,349 tonnes of refined copper in 2006, 31.5 percent less than in the year before, official Customs data showed on Monday, while exports surged 70.6 percent to 246,757. [ID:nPEK175058]
Imports of copper concentrate and scrap also fell.
ANZ analyst Andrew Harrington said that despite the sharp year-on-year percentage fall in 2006, the level of Chinese copper imports remained healthy, supported by continuing rapid growth.
“If China keeps going at double-digit growth, prices will be sustained no matter what they try to do,” he said.
On Friday, China’s National Development and Reform Commission said economic growth rose 10.5 percent in 2006, raising concerns of significant tightening measures to come.
Harrington added: “My own view is that sentiment will push prices down this year — closer to normal levels — although it is hard to call $5,000-a-tonne copper normal.”
Copper for delivery in three months on the London Metal Exchange was slightly lower at $5,725 a tonne at 0713 GMT, from $5,750 at the close on Friday.
Investors in the United States also appear to be betting on falling prices.
According to the latest weekly Commitments of Traders report issued by the Commodity Futures Trading Commission in New York, the non-commercial net position on COMEX was 19,255 lots of short positions, versus 19,994 a week ago. [nN12OTR]
“China may surprise to the upside and fresh investor flows could help lift prices,” an LME dealer in Singapore said.
He said investors would tend to shun commodity funds that are heavily weighted towards energy, such as the Reuters/Jefferies Index and the Goldman Sachs Commodity Investment fund , because of the forward structure of the oil market.
“Any new investment flows into commodity indexes will be directed away from energy and therefore towards metals and grains,” he said.
Near-term oil prices are lower than those in the future, known as a contango market.
This means investment funds lose money when they roll their positions by selling contracts close to expiry and buying further forward, and rely on outright price rises to make a profit.
In a backwardated market, where nearby prices are higher than those in the future, investors make a profit each time they roll.
While oil markets show a contango of around $2 per barrel between the spot price and the three-month futures contract, base metals, with the exception of copper, are in backwardation.
ANZ’s Harrington said commodity index funds had pumped around $100 billion and that could rise by a further $25 billion in 2007.
March Shanghai aluminium futures rose to 19,890 yuan from 19,810 yuan, while LME aluminium was flat at $2,705.
The cash-to-three months backwardation widened slightly to $77/82 a tonne, around a six-year high.
Nickel futures were up $300 at $32,700.