Shanghai copper futures climbed 1.7 percent on Wednesday, tracking gains in London on Tuesday. But Shanghai futures could come under pressure as merchants take advantage of stronger prices for prompt metal and import large tonnages of London Metal Exchange copper from nearby locations.
The most active March contract gained 860 yuan to 52,850 yuan ($6,784) a tonne at the close on Wednesday. Dealers noted that demand in China appeared strong, as shown by the premium for the February contract of 1,150 yuan a tonne above the March contract and a positive arbitrage between London and Shanghai prices.
"The strong spot market in China shows that consumers are buying, and to fill that demand, some astute players are positioning material in the region to take advantage of the higher prices," a dealer in Shanghai said.
"About a third of the stock in Korean warehouses is cancelled and can be shipped out to China very quickly." On Tuesday, LME copper stocks in South Korea totalled 37,825 tonnes, of which 13,700 tonnes or 36 percent are on cancelled warrants and earmarked for delivery.
Global LME stocks stand at 196,900 tonnes and the ratio of cancelled warrants is just over 9 percent. "There will be a lot of copper shipped to China by mid-February," Zhang Heng, an analyst at Jinrui Futures. The first trader noted that business had been brisk in the first two weeks of 2007.
"I think we may be seeing the return of the Chinese consumer. There has certainly been a lot more buying at the start of this year than we saw for much of 2006." Spot copper prices in Shanghai were up 125 yuan, quoted between 55,200 yuan and 55,400 yuan.
"Producers are choosing to sell into the futures market because they are worried prices will fall further," Shen Haihua, an analyst with Maike Futures Brokerage in Shanghai. "If spot prices collapse, at least they will have locked in profits." He added: "They won't necessarily deliver against their futures positions. I won't be surprised in a month or so if they buy them back, if prices have fallen significantly."
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