Shanghai copper futures slid more than 2 percent on Thursday, as investors sought to book profits on arbitrage trade between the Chinese and London markets. The most-active August copper contract on the Shanghai Futures Exchange had fallen 1,440 yuan to 65,500 yuan ($8,618) a tonne by the end of the session.
That represents a premium of $1,198 per tonne over the London Metal Exchange price. "Shanghai has been strong in the last couple of days compared to London. I don't think Shanghai can go on like this and some people are taking profits," said a Shanghai trader. Spot prices in Shanghai ranged between 64,150 yuan and 64,450 yuan, down 1,175 yuan, largely in line with the futures market.
Copper for delivery in three months rose $15 to $7,435 a tonne, after falling $120 on Wednesday. A continued drawdown in stocks helped support London prices on Thursday, with LME copper stocks declining by 250 tonnes to 123,050 tonnes, the lowest since late October 2006 and down by about 40 percent since the beginning of February.
"Shanghai is tracking international prices with LME and Comex both falling yesterday, while material on the spot market is readily available," said Cai Luoyi at China International Futures Co in Shanghai.
US copper futures finished lower on Wednesday, with the contract for July delivery ending down 3.75 cents at $3.4040 a lb. on the New York Mercantile Exchange's Comex division. Traders say ample Chinese domestic supply is also pressuring prices, with high stocks weighing on the Shanghai market.
Another previously supportive factor was that a possible strike at Mexico's Cananea other operations and mine owned by copper giant Group Mexico appeared less likely with workers postponing action until June 15.
The strike had previously been scheduled to start on June 10 if no agreement was reached on safety conditions. Ongoing disruptions and tight stocks have some analysts pointing to a possible rebound in base metal prices such as copper, which although up over 17 percent this year, has failed to re-trace its climb to an all-time high of $8,800 scaled in May 2006.
"Indeed the commodities picture does look bullish with stronger-than-expected global economic growth, strong increases in metal demand showing up in 2007 and ongoing supply disruptions, not forgetting that the market is also running with low inventories," Basemetals.com's William Adams said in a note. Copper hit $8,335 in May, but has been unable to hold for long above the $8,000 level.