Shanghai copper futures rose 7 percent on Monday, touching their upside limit for a second consecutive trading session, supported by continuing declines in stocks and positive industrial output and other data from China.
Shanghai prices have surged 10 percent in the past two sessions while London was shut for the four-day Easter holiday, sending the premium for Chinese metal above 4,600 yuan ($673) a tonne accounting for Chinas 17 percent VAT, and likely to prompt a fresh wave of arbitrage dealing buying in London and selling in Shanghai.
"Things appear to be coming together for copper. The data from China is coalescing into some pretty decent support for the market. Given the dependence of China on supplies from the international market, the gains in Shanghai are very likely to lift London when it re-opens," a dealer in Singapore said.
Third-month June copper rose to 41,240 yuan a tonne at the open, up 2,690 yuan, or 7 percent, from Fridays settlement and its highest since mid-October. Prices have rallied 23 percent this month and are up 85 percent from Decembers lows. By the close, prices had retreated slightly to 41,110 yuan. "The Shanghai market is using the LME market holiday to push prices above 40,000 yuan," said Orient Futures Securities analyst Lin Hui.
She added the rally, which started as a rebound after sharp declines, had snowballed with support from a rise in lending. "The key question is whether the wave of new projects prompted by loans and the governments stimulus spending will last."
Chinese banks extended 1.89 trillion yuan in local currency loans in March, bringing the first quarter total to 4.58 trillion yuan, near Beijings full-year target of at least 5 trillion. Chinas Premier Wen Jiabao said on Saturday industrial output growth rose to 8.3 percent in March from a record low of 3.8 percent in the first two months of the year.
Also supporting sentiment, Chinas imports of unwrought and semi-finished copper hit a record 374,957 tonnes in March, data showed on Friday. More bullish news emerged on Monday. China is planning a new economic stimulus package targeted at boosting consumption, the China Securities Journal reported, citing a senior official of the State Information Center.
China has already announced a 4 trillion yuan ($585 billion) stimulus package to combat the economic crisis. Copper inventories in warehouses monitored by the exchange dropped 4,142 tonnes last week, to 18,766 tonnes, their lowest since early February.
Aluminium fell 235 yuan to 13,250 yuan, lagging coppers huge rise, but still up 15 percent on the year. However the market lacks the fundamental support seen in copper and analysts question how sustainable current prices are.
"Aluminium consumption is so-so, unlike copper demand, which is much better, thanks to the government stimulus spending on grid construction, among other things," Wang Feng, an analyst with Everbright Securities, said. "The last round of reserves purchases has ended. Quite a number of aluminium smelters have made plans to resume production. If there is no new reserve purchase plan, aluminium prices will go through an adjustment period."
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