Shanghai copper edged up on Tuesday, tracking gains in China's stock market led by property shares, while worries about a potential US fiscal calamity and uncertainty over China's copper demand outlook capped gains. The Chinese stock market jumped to its highest in more than five months as investors bought property shares, helping to lift base metals used extensively in construction.
China's reviving economy and strong demand for housing are expected to put upward pressure on home prices next year, although Beijing has insisted that it will maintain controls over the real estate sector while pledging to ensure stable economic growth. China, the world's biggest copper user, consumes about 40 percent of the industrial metal.
"Copper was following the rise in the stock market today," said a Shanghai-based trader, adding that copper prices may get a boost in the new year when consumers start to replenish their stockpiles, after lowering inventories before the year-end. Physical copper traded at a steep 290 yuan a tonne discount to Shanghai's front-month copper futures contract, according to the Shanghai Metals Market website (www.smm.cn), indicating sluggish demand.
The most-traded April copper contract on the Shanghai Futures Exchange rose nearly half a percent to 57,120 yuan ($9,200) a tonne. It hit a one-week high of 57,300 yuan earlier in the day. Shanghai copper futures volume picked up from the previous day's sluggish level, with 305,560 lots changing hands versus Monday's two-week low of 211,736 lots. The London Metal Exchange is closed on Tuesday and Wednesday for the Christmas holiday.
Talks in Washington to avert $600 billion in automatic tax hikes and spending cuts in the new year, known as the "fiscal cliff", stalled last week as House of Representatives Speaker John Boehner was unable to gain support for a tax plan. With only a week left before a deadline for the United States to avoid going over the cliff, lawmakers played a waiting game on Monday in the hope that someone will produce a plan to avoid harsh budget cuts and higher taxes for most Americans from New Year's Day.
"With the absence of major economic data and traders from the global market, the market will probably stay put and watch what will happen to the 'fiscal cliff' talks when the deadline draws near," said Fang Junfeng, an analyst at Shanghai CIFCO Futures. Fang said copper could get a short-term lift when liquidity in the market improves in the new year, but the longer-term outlook was less certain. LME copper stocks continued to climb on December 21, up 4,950 tonnes at 312,400 tonnes, the highest level in more than 10 months.