Copper futures rose in Shanghai on Tuesday as traders sought to narrow a wide gap between Shanghai and London Metal Exchange futures that has spurred Chinese exports and discouraged imports.
Strong gains in Shanghai helped lift benchmark London Metal Exchange copper futures to $7,855 a tonne in Asian trade, after London Metal Exchange copper weakened on Monday to $7,730 a tonne. Shanghai's most-active September contract ended on Tuesday at 71,440 yuan ($8,939) a tonne, up 1,260 yuan, or 1.8 percent, from Monday's close.
"Heavy buying in the and short covering in the afternoon helped the copper contracts above the psychological barrier of 70,000 yuan a tonne," said Wang Zheng, analyst at Shanghai Dale Futures Co Ltd.
Weak spot demand due to high prices, the summer lull and domestic sales by the State Reserves Bureau, a government arm managing metals reserves, had helped depress Shanghai prices to the point where importers faced a loss of up to 10,000 yuan a tonne in recent weeks.
Relatively stronger gains in Shanghai in the past few days had now narrowed the loss for importers to about 6,000 yuan a tonne, traders say. Spot copper prices rose 1,050 yuan a tonne, to a range of between 69,800 yuan and 70,150 yuan in Shanghai.
Shanghai copper is expected to stay relatively stronger than LME futures for the near future as traders anticipate that China's need for imports will recover at the end of the summer.
In the meantime, exports of refined copper are still expected to be strong in July, as high international prices attract sales. "Traders moved their stockpiles from Shanghai to nearby LME warehouses to arbitrage, but will decrease their deliveries as Shanghai prices increase," said Chen Ting, general manager at Zhejiang Day Futures Brokerage Co Ltd.
On Monday, 3,375 tonnes of copper were delivered to South Korean warehouses, helping to lift total LME copper stocks to 92,225 tonnes after they hit the lowest point this year on Friday.
Meanwhile, traders expect LME copper to make another run at $8,000 a tonne, bolstered by the threat of strike disruptions. "London copper is capable of reaching $8,000 a tonne area this month, heated by supply concern," a trader in Japan said. Union workers at BHP Billion's Escondido mine in Chile, the world's largest, are working slowly and could vote to strike at the end of July, while Grupo Mexico's strike-plagued La Caridad copper mine will close in the next few weeks if talks with workers yield no result.
Trade in other metals was light, after nickel hit a fresh record high of $24,800 a tonne in London on Monday. LME aluminium futures traded around $2,575 a tonne, up $10 from yesterday's close.
In Shanghai, the most-active aluminium contract, September, ended at 19,510 yuan a tonne, 10 yuan lower than on Monday's close. Supply concern eased after Century Aluminium Co and the United Steelworkers union said on Monday that they had agreed to extend the current labour contract covering union workers at the Ravenswood, West Virginia aluminium smelter on a day-to-day basis.
Alcoa Inc, the world's largest aluminium producer, said on Monday that second-quarter profit soared on higher prices and aerospace and construction demand, but its stock dropped by 4 percent as sales fell below Wall Street expectations.
Tin futures slipped by about 1 percent, even as the world's largest integrated tin producer, PT Timah TDK said it would cut production to 38,407 tonnes this year, from 47,799 tonnes last year, in hopes that prices would rise and offset higher fuel costs.