Copper edges up, but Europe fears weigh

Wednesday, 13 June 2012 11:03

Posted by Imaduddin

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SHANGHAI: Copper rose slightly on Wednesday, but mostly stayed in narrow ranges amid thin volumes, reflecting investor caution as a resolution to Europe's debt crisis remained elusive, clouding the outlook for raw material demand.

Spain's surging borrowing cost and uncertainty ahead of Greek elections this weekend have trimmed appetite for risk assets after a rally in Asia on Monday, when London copper rose the most in nearly two months.

Fitch Ratings on Tuesday downgraded 18 Spanish banks less than a week after the agency cut the country's sovereign debt rating, underscoring the potential for lenders' assets to deteriorate further.

Three-month copper on the London Metal Exchange inched up 0.4 percent to $7,423 a tonne by 0511 GMT, with volume traded on LME Select at less than 1,500 lots.  

The contract jumped 1.7 percent on Monday in a short-lived rally spurred by a European Union-led bailout package for Spain's banks.

The most-active September copper contract on the Shanghai Futures Exchange gained 0.5 percent to 54,020 yuan ($8,500) a tonne, after losing more than 1 percent in the previous session.

"Copper prices are stuck in a narrow range, reflecting caution and directionless trading. Investors are encouraged by equities' rise, but are wary over the euro zone problems, which have so many implications for the world economy," said Great Wall Futures analyst Li Rong.

PREMIUMS RISE

LME copper is down around 2 percent so far this year, purging early double-digit gains spurred by expectations demand from top consumer China will be strong. The metal fell to a near six-month low of $7,233.25 on Friday.

But traders said the recent price drop has spurred Chinese copper demand, with physical premiums rising by a steep $40 to $60-$70 per tonne over LME prices since early May.  

A Qingdao-based trader said she sees signs of a small pickup in drawdowns from bonded warehouses in Shanghai, as LME copper's premium over Shanghai eased to 1,075 yuan from nearly 4,000 yuan in early May.

Macquarie analyst Bonnie Liu said the surprise 12 percent rise in China's copper imports last month also offered hints that Chinese demand was starting to recover.

"It is worth noting that this big import number for May happened at the same time as copper inventory was going down in China for both bonded and ShFE warehouses," she said in a recent note.

"This implies improving demand from downstream end-users from the second quarter compared with the weakness at the start of the year."

But market players warned the rise in real demand was still slight, and much smaller than the import figures and a current backwardation in ShFE copper's front-to-forward-month spreads would suggest.