Shanghai base metals futures fell half a percent on a volume weighted average basis on Monday, but prices closed off their early lows struck following China's Christmas Day interest rate rise, underpinned by a positive fundamental outlook.
-- LME closed on Monday for Christmas holidays
The three-month copper contract on the Shanghai Futures Exchange ended 240 yuian lower at 68,710 yuan per tonne, having slipped as low as 68,310 yuan at the start of trade. Zinc dropped 165 yuan to 18,695 and aluminium shed 45 yuan to 16,695 yuan. A late fall in Shanghai's equity market, which closed 1.9 percent lower, prompted investors to sell metals that had crept back into positive territory in the afternoon after the early losses.
China's central bank raised interest rates on Saturday for the second time in just over two months as it stepped up its battle to rein in stubbornly high inflation. "Our economists had expected a rate rise before the end of the year, but releasing the news on Christmas Day itself came as a little surprise to the market," said Chen Xin Yi, associate vice president at Barclays Capital in Singapore.
"Nevertheless, we believe that the well-calibrated timing reflects consideration for minimising unwanted financial market volatility and reducing potential capital movement to the extent possible," she said. "Overall, this is actually quite positive. The rate rise before the end of the year shows that there seems to be some consensus building that Beijing will engage interest rate hikes to control inflation risks." The last time China moved on interest rates back in October, copper prices dropped by almost 2.5 percent in a knee-jerk reaction.
"It was all a bit of a disappointment. We had been looking for a steeper sell-off than this, but rate rises have been priced in and the fundamentals remain very bullish," a trader in Singapore said. The London Metal Exchange was closed on Monday for Christmas holidays and trade will only resume on Wednesday. When Shanghai closed on Friday, LME copper stood at $9,345 a tonne.
US copper futures rose 0.7 percent on Monday to 428.95 cents per lb ($9,457 a tonne) from Thursday's settlement. At that time, LME copper stood at $9,300. In the short term, an accident at a key export port in Chile was likely to underpin sentiment, with disruptions to shipments expected to last for over a month, Anglo American Chile CEO Miguel Angel Duran said on Thursday. Longer term, expectations of a supply deficit in 2010, estimated by Barclays Capital at more than 800,000 tonnes, was expected to keep prices up near $10,000 a tonne.
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