London Copper Falls After Gains, Shanghai Lags Rally

SHANGHAI, June 12 -- London copper fell more than one percent on Friday, retreating from gains in the previous session, while Shanghai lagged behind the rally on worries over sluggish demand in summer.

    Metals market, together with other markets, have been encouraged by upbeat news from around the world pointing to an economy recovery, including the first gain in three months in U.S. retail sales and a drop in new jobless claims.

    Another bright spot was China's annual industrial growth, which rebounded to 8.9 percent in May against forecasts of 7.5 percent, while May retail sales were up 15.2 percent from last year, exceeding expectations of a 14.9 percent rise.

    London copper hit a near 8-month high of $5,388 a tonne in the previous session, bolstered by China's record copper imports in May, but this provided little support to sentiment in the Shanghai market, where worries over weak demand in summer linger.

    Shanghai's benchmark third-month copper contract rose 1.1 percent to 41,950 yuan a tonne, and is poised for a 2 percent weekly rise. The most-active contract for September delivery rose 1 percent to 42,040 yuan.

    "Shanghai copper has not followed LME's enthusiasm, because domestic consumption is not good. If Shanghai stays below 42,000 yuan, the bull run may slow down or take a pause next week," said a Shanghai-based trader.

    "Consumption in other countries has yet to recover as the financial crisis is not going to end this soon. So long as consumption stays weak, sharp rises in prices are meaningless."

    Copper for three-month contract on the London Metal Exchange fell 1.4 percent, or $75, to $5,305 a tonne by 0218 GMT, easing from gains the previous day, but was headed to a weekly rise of 6.6 percent.

    Copper inventories in LME warehouses drifted lower to 293,175 tonnes on Thursday, helping sentiment. But cancelled warrants -- material tagged for delivery -- fell as well, to 27,625 tonnes, or about 9.4 percent of total stocks.

    "The stream of positive macro data over the past week has led to further price gains for the base metals and as long as data remains positive, prices are likely to remain well supported," said Barclays Capital in a research note, acknowledging a pull-back in prices was likely in coming weeks as some metals prices have gone ahead of fundamentals.

    The Shanghai Futures Exchange is due to release its weekly metals stocks data later in the day. Investors expect stockpiles to continue to rise but not necessarily as strongly as last week when copper stocks rose 51 percent.

    LME aluminium shed 1.1 percent to $1,675 a tonne, after failing to reach a six-month high of $1,701 hit on Wednesday. Shanghai aluminium gained 0.7 percent to 13,565 yuan.

    "Domestic aluminium prices are facing a lot of pressure. As a large producer of aluminium, China imported so much of it in the past few months as a result of higher domestic prices," said Li Rong, an analyst with Great Wall Futures.

    China produced 331,800 tonnes of refined copper in May, up 1.4 percent on the year, and 999,300 tonnes of aluminium, down 12.1 percent from a year earlier.

    (Source: Reuters)