Shanghai copper gains

Shanghai copper prices edged higher on Monday, tracking London futures as investors weigh seasonally slow demand against the prospect of speculative buying at the start of the new quarter and threats to supply. The most-active September copper contract on the Shanghai Futures Exchange rose 0.4 percent or 270 yuan to 64,270 yuan ($8,444) a tonne at the close.
Record copper imports in the first five months of 2007 - exceeding net imports for all of 2006 by 30 percent - caused a glut that cut importers' margins and hit earlier this year.
But the situation is changing with slowing imports, falling stocks and a supportive global economic environment painting a more positive outlook for industrial metals, Peter Richardson, macro and commodities strategist at Craton Capital said.
"There are two important bearish influences in the short term," said Richardson, who recently joined the European-based specialist resource fund from Deutsche Bank.
"One is that interest rate expectations are shifting to a steady or rising bias, the other is that after China's huge imports earlier this year, there has to be some destocking."
"But we are optimistic about the macroeconomic scenario. Steady or higher interest rates are possible only if underlying growth remains reasonable, and in China we don't think stocks have built to an unacceptable level," he added.
That view was borne out by a 5,408-tonne fall in Shanghai Futures Exchange copper inventories to 90,617 tonnes last week, and steady spot copper prices in Shanghai. Copper for delivery in three months on the London Metal Exchange was up $55 at $7,615 at 0716 GMT.
The strong performance by copper, which touched a two-week high on Friday, could encourage more speculative investment as the second half of the year gets underway, despite traditionally slower demand conditions due to seasonal shutdowns by consumers. "There is potential for more buying with the new quarter and half. In the past everyone would pile in on the first day, but we now expect a bit of delay as investors pick the right opportunity," an LME dealer said. Strikes and threats to supplies at various copper mines in South America and Canada have raised worries about copper supplies, underpinning prices.
"The strikes, which have been in the news for a week, are supporting, but not encouraging fresh buying. We need a convincing break above $7,600 to attract momentum buying," the LME dealer said. "On the downside we might test lower with $7,200, the first support. It will depend on if and when this fund buying comes through."
Management at Chile's Collahuasi copper mine have requested mediation after workers voted to go on strike, rejecting a wage deal from management ahead of the current contract expiry on June 30. The parties have five working days to reach a deal or face a strike on July 9, a union official said over the weekend.
Also in Chile, state copper miner Codelco expects to resume talks with subcontractor workers who have been protesting all week for better pay and working conditions. Shanghai zinc dipped by around a third of a percent to 26,620 yuan, not far from last week's contract low of 25,410 yuan. LME zinc was up $15 at $3,370.
LME zinc prices have lost over 20 percent this year compared with copper's rise of 19 percent. "Chinese zinc production has grown faster than the economy's ability to absorb the metal," Richardson said.
"That is showing up in the stocks and in exports. Zinc has been among the weakest performers, which accurately reflects those fundamentals." Shanghai zinc stocks have risen from zero to over 45,000 tonnes in just a few weeks, more than offsetting a 20 percent decline in LME inventories to 73,000 tonnes since the start of the year.