Copper prices took another tumble on Monday, with most Shanghai futures contracts hitting daily downside limits as investors fretted over rising inventories, despite an otherwise robust market outlook.
Shanghai copper futures fell by their four-percent daily limit at the in response to a plunge in London Metal Exchange three-month copper to four-month lows on Friday. "Copper's starting the week the way it ended last week, in negative territory," a metals trader said.
Almost all Shanghai copper futures were at limit-down, with the most active January contract dropping to 65,060 yuan ($8,277) a tonne, against 67,450 yuan at last on Friday's close. Copper for delivery in three months on the LME was quoted at $6,850 a tonne after losing $410, or 5.6 percent, to $6,900 in London on Friday after LME stocks leapt 1,625 tonnes to 148,200, up 54 percent from the start of the year.
"Fundamentals for copper still look strong, but the stocks can't be ignored," a second trader said. China's strong appetite for copper to feed industrial growth has long fuelled copper prices.
Expectations that this trend will continue were underscored by news last week that copper smelters might continue to chase limited supplies of concentrate next year. Chile's giant Escondida mine, majority owned by BHP Billion Ltd/Plc, has opened 2007 copper treatment and refining charge talks with Chinese smelters with an offer a third lower than charges for 2006.
The miner offered $60 per tonne for treating and 6 cents per pound for refining its concentrate in 2007, from $90 a tonne and 9 cents a pound, with price participation, in 2006. "That tells us that at least BHP thinks smelters are desperate for concentrate," the second trader said. High copper prices, which hit a record $8,800 a tonne in May, had kept China off the world copper market for months. Imports of copper, including semi-finished products, fell 22.4 percent between January and October as it relied on its own stockpiles. But with copper prices slumping and domestic stockpiles diminished somewhat, some analyst's think China may again turn buyer.
"There is no visible oversupply in China's copper market. A strong price rise may appear if buying interests of consumers and investors are prompted by a might-be shortage in domestic physical market," Xue Feign, an analyst at Maike Enterprise Group said in a market note. Three-month zinc found modest support to reverse last week's downtrend, gaining $5 to $4,335 a tonne. Zinc lost 5.1 percent of its value on Friday.
Traders attributed zinc's weakness more to profit taking than a shift out of the metal, given its strong underlying fundamental outlook. Zinc stocks have steadily evaporated since mid-2005, and at 95,250 they are down more than 80 percent on where they were in June last year. Prices meanwhile have more than doubled since the start of 2006.