Shanghai coppers and zinc bounce

Shanghai coppers and zinc's prices bounced by 4 percent on Monday after a weeklong slide despite new measures by China to slow growth. Shanghai August copper was at 64,120 yuan ($8,364) a tonne, up 4.5 percent or 2,760 yuan from Friday's close, while July zinc was higher at 30,720 yuan.
Zinc rallied by its 4-percent daily limit from Friday's settlement, gaining 1,180 yuan to 30,725 yuan, after losing 15 percent last week. "It is judge whether today's rise is a temporary rebound or the start of a longer-term surge," Li Rong at Great Wall Futures, said.
"Copper fell for a whole week last week and technically there should be a recovery, but we also see that London futures are strongly supported under $7,200." Copper for delivery in three months on the London Metal Exchange rose $78 to $7,350, after dipping to a seven-week low of $7,090 on Friday.
"The rise in Shanghai copper is a reaction to the wide price differential between Shanghai and London," said analyst CIA Luoyi of Shanghai International Futures. He added: "The monetary tightening measures will actually impact the market, as the country's fixed asset investment could decrease on it."
China's central bank said late on Friday that it was raising benchmark lending and deposit rates, lifting bank reserve ratios and widening the yuan's trading band, its strongest package of steps since it began tightening policy a year ago.
The central bank's package is widely seen as aimed partly at soaring equity prices, after its governor Zhou Xiaochuan said this month he was concerned about a stock market bubble and was monitoring asset prices.
National Australia Bank analyst Gerard Burg felt that the move would not be significant for commodities. "The changes made by China are not that significant. The rate rise may increase costs for consumers slightly but it won't change demand that much," Burg said. "China continues to bubble along very solidly."
Investors have been concerned about rising stocks of copper in Shanghai, which, at roughly 100,000 tonnes, are up nearlur-fold from mid-February and are at their highest since May 2004.
But the rise in Shanghai has been offset by a fall on the LME. "Combined exchange stocks have been broadly steady since the start of the year at 240,000-280,000 metric tonnes," Semipro Metals economist John Kemp said in a note.
"The drawdown in stocks on the LME from 210,000 metric tonnes to 140,000 metric tonnes has been almost exactly offset an increase in holdings on the Shanghai Futures Exchange reflecting the huge flow of cathode to China in the first four months of the year and relatively tighter conditions in Europe."
But he added that slowing growth in the United States and increased substitution and efficiency would weigh on demand and the market could be in surplus this year by almost 750,000 tonnes, versus a forecast by the International Copper Study Group of 330,000 tonnes.