Shanghai Copper, Zinc Limit up, Chases LME

SHANGHAI, May 6 -- Shanghai copper and zinc jumped by their 6 percent limit on Monday, when the market reopened after a one-day break, chasing a rally in London following positive economic data from China and the United States.

    Shanghai benchmark copper jumped 2,160 yuan to 38,180 yuan, its upside threshold in early trade, while zinc hit its limit of 13,140 yuan after the midday break.

    "People are adding to their long positions, but that's a pretty risky move in my view," a dealer in Shanghai said.

    "Prices in China are very high -- spot prices have surged, but the demand is not there from consumers at these levels."Spot copper in Shanghai jumped almost 7 percent to 40,100 yuan on Monday.

    The trader said gains on the Chinese market may be an attempt to exploit the British market holiday and drive up prices, so that when trade resumes, investors rush to buy.

    "There is a chance that some of the LME boys will cover positions when they come back. But the fundamentals still don't support. The data flows are becoming positive, but have not yet caught up with prices."

    Copper prices dropped more than 15 percent from six-month highs in mid-April but recovered by Friday when London Metal Exchange copper hit a two-week high and zinc rose 6 percent, boosted by an improvement in U.S. consumer confidence in April, an expansion in Chinese manufacturing and another hefty outflow of metal from LME warehouses.

    "The two markets are taking it in turns to lead each other. Last week it was London with the baton," a trader in Singapore said.

    He added that he expected prices to continue to rise, with London metal targeting recent highs above $4,900.

    "We had a nonsense shakeout on this swine flu hysteria. It's been completely overblown, but people used it to justify closing positions."LME copper stocks fell 7,075 tonnes to 398,700 tonnes, data on Friday showed. Cancelled warrants were 83,100 tonnes, about 20 percent of the total stock.

    LME zinc jumped 6 percent on Friday, to $1,525, closing in on mid-April's six-month high of $1,566.

    "Zinc's an interesting market. Cancelled warrants are relatively high and stocks have been coming down for the past couple of months," a dealer in Sydney said.

    "The problem with zinc is that is used to make galvanised steel and that market still doesn't look very healthy."Zinc stocks have fallen by 7 percent in the past couple of months, and cancelled warrants stand at a relatively high 6 percent, concentrated in Asia.

    In industry news, the Financial Times reported on Monday Rio Tinto Ltd/Plc was considering ways to revise a $19.5 billion tie-up with Chinese metals firm Chinalco, to appease shareholders and regulators.

    But a senior executive at Chinalco said: "This investment is a package. It is a result of two months of very intensive negotiations. It cannot be viewed separately," said Wang Wenfu, president of Chinalco Overseas Holdings, in an interview with the Financial Times, seen on its website .

    (Source: Reuters)