Shanghai copper was steady on Thursday while London futures ticked lower as investors weighed the potential return of Chinese buyers to the international market against a stronger dollar and slowing growth in Europe.
The discount for Chinese copper versus London Metal Exchange futures has narrowed sharply in the past week as international prices were hit by a commodities-wide investor sell-off, opening an arbitrage window to buy LME metal and sell it in Shanghai for the first time in about five months. "The narrowing discount is a positive trend and the talk we hear is that that consumers in China are starting to return," said Gerard Burg, analyst at National Australia Bank.
The discount for Shanghai's three-month copper futures to the benchmark London contract, including China's 17 percent value-added tax, stood at 717 yuan ($104.8) at 0350 GMT, after tumbling on Wednesday to just 460 yuan. That was narrow enough for some merchants to profit by buying LME copper to sell in Shanghai, traders said, suggesting a pick- up in thus-far lacklustre Chinese copper imports.
"There are still grey clouds over the United States and Europe. The trend for metals is down. The global economy is looking softer than in some years and supply is moving into surplus for some of these metals," Burg said. But he added that infrastructure projects, especially in China, would continue to demand copper and aluminium and those metals would outperform the rest of the complex. Shanghai aluminium fell 0.2 percent to 17,110 yuan, trading near Wednesday's near three-year low of 17,055 yuan as investors worried about oversupply in China.
"Aluminium should continue to soften. In August the government cancelled rebates on aluminium alloy exports and domestic supplies are rising," the Shanghai trader said. "I think domestic prices could fall to 16,000 yuan. The real estate market isn't very strong and that is also weighing on demand." LME aluminium rose 0.2 percent to $2,680.
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