Shanghai copper prices rose nearly 2 percent on Monday and London futures were trading around 3.5 percent short of record highs, and could hit new peaks on a strike in Peru, the world's second-largest copper miner. Peru's largest federation of mining unions said on Monday a nationwide strike has started in the country, which mined over 1 million tonnes of copper last year.
It was not immediately clear what effect the strike would have on production. The most active Shanghai September copper contract closed up 1,070 yuan to 63,430 yuan ($9,250) a tonne, while London Metal Exchange copper for delivery in three months rose $45 to $8,575. London copper has outperformed its Shanghai equivalent, rising 29 percent so far this year, versus 12 percent in China.
"At the moment, the Chinese physical market is not very healthy. London metal keeps rising while Shanghai is stuck around 62,000-63,000 yuan," a trader in Shanghai said. "LME copper could go higher and may take out the record high, but prices in China will be flat. If the LME does surge, then Chinese producers would be able to profitably export material."
The gap in prices between the London and Shanghai copper markets narrowed to 5,394 yuan from 5,442 yuan on Friday, including Chinese value-added tax, but is heading back towards a record 6,549 yuan on April 18. "The arbitrage between international metals prices and Chinese domestic prices provide us with an indication of the degree of tightness in the Chinese domestic market and the flows of metal in and out of China," Macquarie said in a report.
"In both cases, these differentials are pointing to over- supplied Chinese markets, perhaps implying that demand has slowed more than previously realised." Surging oil and a softer dollar have attracted broad-based interest in many commodities, lifting gold, base metals and a range of soft commodities.
Oil hit a record high of $142.99 a barrel on Friday and was trading within $1 of that on Monday. Gold traded near a one-month high and the market looked poised for fresh gains.
The euro was trading around a three-week high against the dollar at $1.5814. The bullish mood towards copper appeared to be waxing with speculative net long positions at a two-month high for US copper futures, data from the Commodity Futures Trading Commission (CFTC) showed. Shanghai aluminium rose 50 yuan to 19,145 yuan, while LME metal dipped $5 to $3,115, just under $200 short of a record high.
LME zinc rose $10 to $1,940. while Shanghai zinc rallied to 16,255 yuan from 16,080 yuan. But traders said the domestic market, which has fallen 50 percent since mid-2007, would continue to weaken. "LME zinc will hold for the moment at least," the Shanghai trader said. "But prices will continue to fall in China, because smelters continue to increase production. We also expect more imports and China's zinc market could go below 15,000 yuan," he said.