Shanghai copper at one-month low on financing worries

Bareksa.com - Shanghai copper fell to its lowest in nearly a month on Monday and London copper also dropped, on fresh short-selling fuelled by concerns that a probe into metals storage at a China port could squeeze financing and cut buying interest in metals.

But zinc hit its highest in more than three months and aluminium touched a six-week peak, underpinned by improving demand.

China's Qingdao Port International Co. Ltd. said on Friday the probe into suspected fraud involving copper and aluminium stored at the port would not impact its operations because the amounts involved were immaterial to its business.

But the market remains nervous as some banks have put new deals on hold while they double check their exposure. Some traders with a bearish view on China's economy are taking the chance to go short, industry sources said.

"In the base metals sector, copper is the most sensitive to some risks, specifically this relatively new type of risk, the collateralised loan in China," said analyst Mark Keenan of Societe Generale in Singapore.

Swelling mine supply this year and prices that are still trading well above their cost of production are also dampening the allure of copper for investors, he added, predicting LME prices would head down to $6,500 a tonne.

The most-traded August copper contract on the Shanghai Futures Exchange dropped by 1.7 percent to 47,370 yuan ($7,600) by 0711 GMT. It earlier hit 47,220 yuan, its weakest since May 12.

"People are shorting copper. Right now is the perfect reason for them to come in and short again," said a trader based in Shanghai.

Chinese commodities funds are considering initiating new short positions on the metal after its recent bounce, betting on a surplus in the market, fund industry executives said in May.

Three-month copper on the London Metal Exchange fell within a whisker of Friday's one-month low, trading down by 0.4 percent at $6,661.50 a tonne. In the previous session it lost 1.4 percent and touched the lowest since May 8 at $6,640.

LME copper fell 2.3 percent last week to post its largest weekly drop since mid-March.

Copper shrugged of a brightening economic picture elsewhere, as U.S. employment returned to its pre-recession peak in May, with a solid pace of hiring that offered confirmation the economy has snapped back from a winter slump.

Improving demand from a diverse base, including auto and white goods, has helped zinc in London and Shanghai to rally to its highest in more than three months, Keenan said.

London and Shanghai aluminium also jumped to the highest in more than six weeks as demand improves against a background of constrained supply. Much of the LME's aluminium stockpiles can't immediately be accessed due to huge bottlenecks at warehouses.

Reflecting ongoing worries about access to financing, Shanghai copper premiums fell again on Monday. Premiums for metal held in Shanghai's bonded zones dropped another $5 to $90-$110, according to China price provider Shmet, down $25 since the middle of last week. (www.shmet.com)

Also, reflecting expectations that more copper will hit global markets, supply stress in LME futures has all but disappeared. Cash traded at just $8 above the benchmark price on Friday, from more than $100 at the end of May. <MCU0-3>

Some copper cargoes held at China's Qingdao Port were being shipped to more regulated LME warehouses, industry sources said on Friday.

China's imports of major commodities fell in May from the previous month, official customs data showed on Sunday, as companies scaled back on orders after robust shipments in the previous months caused a supply overhang.

Copper imports from the world's top consumer fell 15.6 percent from a month ago to 380,000 tonnes in May.

"June imports have the potential to see somewhat of a rebound given the improving arbitrage and premiums seen in May. However, July and August are likely to see weak imports given soft demand, rebounding domestic refinery production, and financing difficulties," said Citi in a note. (Source : Reuters)