Copper Rises, But Fundamental Worries Remain

SHANGHAI/SINGAPORE -- Shanghai copper rose two per cent, chasing gains in London in the previous session, as worries over weak consumption and oversupply vied with hints the sickly US housing sector may be on the mend.

    After solid results from US home improvement retailer Lowe's Cos Inc sparked a Wall Street rally on Monday, the market is looking for positive housing data later on Tuesday.

    Analysts expect the rate of groundbreaking for new homes to rise in April but see it being tempered by the glut of unsold homes, a Reuters poll showed.

    Third-month benchmark Shanghai copper rose 2.1 per cent to 35,990 yuan a tonne by midday, after falling nearly two per cent in the previous session.

    "Shanghai copper has been rather stuck, and has shown no clear direction recently. Despite weaker sentiment, prices are not going to decline fast, as bears have so far failed to actively hammer down prices," said Lin Yuhui, deputy general manager at Jinhui Futures.

    On the London Metal Exchange, copper for three-month delivery edged down $US8 to $US4,512 a tonne by 0331 GMT (1331 AEST), easing after a 1.6 per cent gain on Monday spurred by US stocks rally and the chance of improving housing data.

    Despite that fresh optimism, fundamentals still look weak, traders and analysts said.

    "Copper arrivals in China in May are likely to be on the same level of April. The domestic spot market is sluggish, and demand is weak. Copper will probably stay soft in the absence of major upbeat news," said a Shanghai-based trader.

    The arbitrage between Shanghai and London has closed, with the benchmark London price 37 yuan higher than Shanghai, after including China's 17 per cent VAT, compared to a Shanghai premium of over 1,700 yuan a month earlier.

    However, LME copper inventories continued to fall on Monday. Stocks dropped 4,250 tonnes to 353,550 tonnes, their lowest since early January. Cancelled warrants - material earmarked for delivery - fell for the third straight day to 59,850 tonnes, down 1,450 tonnes from a day earlier.

    The ratio to the total tonnage eased to just below 17 per cent, compared to nearly 20 per cent a week earlier.

    LME zinc gained $US7 to $US1,525, while Shanghai zinc rose 1.3 per cent to 12,895 yuan.

    "It will be hard for zinc to break below 12,000 yuan a tonne, which is close to the production cost of the metal. Prices nearer that level will attract buyers," said the Shanghai-based trader.

    The news that Hunan Nonferrous Metals plans to build up stocks of metals, including zinc and lead, has also lent support to zinc prices, some analysts said.

    (Source: Reuters)