Shanghai copper lower, but spot market strong

SHANGHAI, Jan 12 - Shanghai copper futures edged down on Friday, and dealers said support from a strong domestic spot market could be undermined after the Lunar New Year in February if consumers liquidated inventory to cash in on higher international prices.

The most active March contract was 0.3 percent lower at 54,640 yuan ($7,011) a tonne at the midday break, versus 54,800 yuan on Thursday.

"Copper futures are still supported by the strong cash market in China, as spot copper supply remains tight in eastern China," Zheng Heng, an analyst at Jinrui Futures said.

But he said that though Chinese consumers were booking material for after the Lunar New Year, if London Metal Exchange prices rebounded above $6,300, that metal would be diverted into warehouses.

Spot copper prices in Shanghai were down 1,250 yuan, and quoted between 57,200 yuan and 57,500 yuan.

Asian premiums for physical copper picked up as traders bought material to import into China. [ID:nSP114535]

Copper for delivery in three months on the London Metal Exchange fell 1.1 percent to $5,835 a tonne at 0406 GMT, from $5,900 at the close on Thursday.

CHINA DRIVER

In a note from Standard Bank, London said China would remain the key driver for base metals prices.

"The belief that China will restock its copper supplies this year, the fact that aluminium exports may be reduced reflecting increased export tariffs, the prediction that stainless steel demand will maintain nickel consumption and China will move to being a net exporter of zinc all weigh significantly on forecasts," it said.

In 2006, China's imports of copper fell 18.6 percent to 2.06 million tonnes as international prices and growing domestic output reduced import demand. [ID:nPEK231155]

But Chinese consumption was ticking up and imports in the first quarter were expected to rise.

Standard Bank said that from a technical perspective, although copper would see a degree of selling while prices held above $5,655, prices could extend to $6,125.

"These levels are highlighted as initial trigger points, with a breakout targeting $5,500 and $6,335, respectively."

Nickel futures were down $300 at $33,200. On Thursday, nickel jumped almost 8 percent to $34,900, within $50 of its December all-time high, but pared those gains by the close.

Nickel prices have doubled over the past 12 months on falling stocks, tight supply and strong demand.

The limited availability was reflected in the premium for cash metal above the benchmark futures contract at $1,584/1,797 per tonne.

March Shanghai aluminium futures were rose to 19,890 yuan from 19,830 yuan, while LME aluminium lost $15 to $2,730.

The cash to three months backwardation narrowed slightly to $68/70 a tonne, from a six-year high of around $80 on Thursday.

 Mining stocks gained, with BHP Billiton Ltd.
 up 1.9 percent and Rio Tinto
2.7 percent stronger.
 Metal Prices at 0407 GMT
 LME Cu         5835.00        -65.00       -1.10
 SHFE Cu*      54640.00       -160.00       -0.29
 LME Alum       2730.00        -15.00       -0.55
 SHFE Alu*     19890.00         60.00       +0.30
 COMEX Cu**      264.85          0.00       +0.00
 LME Zinc       3845.00        -30.00       -0.77
 LME Nickel