Shanghai copper prices fell nearly 2 percent on Monday as investors worried about China's inflation woes, and shrugged off a widespread power outage in Chile that halted output at several mines. The blackout was caused by a problem at a transformer and began at 2350 GMT, but was not expected to last more than a few hours. About 80 percent of the country had power restored by 0300 GMT.
Chile's state copper miner Codelco said operations at its second biggest copper mine, El Teniente, which turns out more than 400,000 tonnes of copper annually, were returning to normal. The Codelco Norte division, the company's biggest, in the northern part of the country, was unaffected.. The temporary blackout did little to improve sentiment, which has been dominated by worries about potential moves by China to further tighten its monetary policy.
"Investors still shudder at the 2.7-percent CPI figure released last week," said Lin Yuhui, deputy general manager of Jinhui Futures. Shanghai's benchmark third-month copper futures contract fell to a two-week low of 58,240 yuan, before ending down 2 percent at 58,300 yuan a tonne. Three-month copper on the London Metal Exchange fell $58 to $7,382 a tonne by 0706 GMT.
The arbitrage window between Shanghai and London closed, as Shanghai prices slipped to a 655-yuan discount to LME, compared with a 28-yuan premium last Friday. "The Chinese are selling," a dealer in Shanghai said. "Domestic consumption still hasn't really picked up and domestic traders are worried about rising rates. They are not paying that much attention to the Chile news so far."
Some traders suspected the sell-off in Shanghai was also related to a large volume of stocks being released from a lock-up period, prompting investors to liquidate other assets. This week there are around 22 billion yuan worth of stocks being released from lock-up. The local market is liquidating everything to pick up those cheap stocks, triggering the selldown in Shanghai Futures Exchange, a metals trader in Singapore said.
Copper prices have been trading in a tight range in the past two weeks, unable to break below $7,245 or above $7,635. China's Premier Wen Jiabao on Sunday spurned foreign calls for the yuan to rise and showed no let up in scolding the United States over recent bilateral tensions, while expressing concerns on inflation and other domestic worries.
"People must be worried about China. Wen Jiabao's comments about currencies weren't helpful. That is increasing trade tension and that is bad for metal," said Edward Meir, analyst at MF Global. Commodities saw their weakest performance, as measured by the CRB index, in over a month last week after a spell of patchy data and worries about China's policy changes. Shanghai aluminium fell to a nearly 5-week low of 16,475 yuan a tonne, before edging higher to 16,510 yuan. LME aluminium was down $12.5 at $2,248.
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