Shanghai copper up on firmer dollar, strike threat

SHANGHAI: Shanghai copper edged up on Monday as the dollar widened its losses and investors focused on a possible strike at the world's third largest copper mine, Indonesia's Grasberg.

But news that Beijing will ask banks to hold more reserves and worries about a global economic slowdown may limit price rises.

The most-active November copper contract on the Shanghai Futures Exchange inched up 0.3 percent to close at 67,610 yuan per tonne after rising 1 percent in the previous session.

The dollar lent support to commodities as its losses against a basket of major currencies widened, with traders betting on more Fed stimulus in the face of an uncertain growth outlook.

A threat of supply disruption at Freeport-McMoRan Copper & Gold's Grasberg mine in Indonesia lent support to copper prices, after workers' talk with the company failed to resolve a pay dispute.

China has ordered banks to include their margin deposits in required reserves at the central bank in an attempt to mop up excessive liquidity, banking sources said on Friday, the latest move in Beijing's campaign to rein in inflation.

"Rumours about the latest bank tightening move have been circulating since last Monday, so the shock factor wanes after a while," said Dongzheng Futures trader Du Xiao Hua.

"The move also encourages the belief that the government will combat inflation with bank reserves rises and yuan appreciation, rather than more disruptive interest rates rises.

"Also, some copper investors may be cheered by the possibility of some Chinese restocking in September and October," he added.

Federal Reserve Chairman Ben Bernanke on Friday stopped short of detailing further action to boost the US recovery but said the central bank would consider what more it could do to fight high unemployment, giving some comfort to investors.

"In the short term I think base metal price movements will be small as investors struggle to find direction after Bernanke's speech, where he didn't offer anything concrete on the US economy but gave us some hope," said Jinrui Futures analyst Zhao Kai.

In New York, the benchmark September COMEX contract fell 0.1 percent to 409.55 cents per lb ($9,029 a tonne) by 0712 GMT, weighed down by the latest US Commodity Futures Trading Commission data, which showed that hedge and pension funds turned net short in copper for the first time since late 2009 in the week ended Aug. 23.

Investors are also eyeing global growth prospects as the struggling US economy expanded even more slowly than previously thought in the second quarter of 2011.

But a breakdown of the growth suggested a new recession could be avoided.

The new head of the IMF on Saturday called on global policymakers to pursue urgent action, including forcing European banks to bulk up their capital, to prevent a descent into a renewed world recession.

In industry news, Terramin Australia said that its processing plant at its Angas lead and zinc mining operation is now fully operating after repairs following an electrical incident. It cut its full-year production forecast by 4 percent to 45,000 tonnes of zinc concentrate.

Production of copper and zinc fell in July in Peru due to shrinking reserves at key mines and lower-quality ore, the government said on Sunday.

The Andean country produced 100,478 tonnes of copper and 103,455 tonnes of zinc last month, down 5.6 percent and 22.7 percent on the year, respectively.

The London Metal Exchange is closed for a summer bank holiday. Trading will resume on Tuesday.

Copyright Reuters, 2011