SHANGHAI, Jan 15 - Shanghai copper futures were steady on Monday following an early rally, as investors weighed support from tight spot market conditions against the prospect of rising imports and increased supply.
The most active March contract was 0.1 percent higher at 54,080 yuan ($6,937) a tonne at the break on Monday, versus 54,020 yuan on Friday.
Dealers said an early rise, which saw prices up by over 1.5 percent, had run out of steam.
"Traders in Shanghai are wary to go long of copper, as they fear more imports of refined copper in the next few months," said Cai Luoyi, analyst at China International Futures in Shanghai.
Strong spot prices for copper in eastern China have supported Shanghai futures, but traders expect that same strength to result in a rise in imports by thirty percent in the first months of 2007 from December.
Spot copper prices in Shanghai were down 300 yuan, quoted between 56,900 yuan and 57,200 yuan.
China imported 969,349 tonnes of refined copper in 2006, 31.5 percent less than in the year before, official Customs data showed on Monday, while exports surged 70.6 percent to 246,757. [ID:nPEK175058]
Imports of copper concentrate and copper scrap also fell.
ANZ analyst Andrew Harrington said that despite the sharp year-on-year percentage fall in 2006, the level of Chinese copper imports remained healthy, supported by continuing rapid growth.
"If China keeps going at double digit growth, prices will be sustained no matter what they try to do," he said.
On Friday, the head of China's National Development and Reform Commission, Ma Kai, said that the 10.5 percent rise in economic growth in 2006 was too high, raising concerns of significant tightening measures to come.
Harrington added: "My own view is that sentiment will push prices down this year -- closer to normal levels -- although it is hard to call $5,000-a-tonne copper normal."
FUND MONEY
Copper for delivery in three months on the London Metal Exchange was higher at $5,765 a tonne at 0409 GMT, from $5,750 at the close on Friday.
"China may surprise to the upside and fresh investor flows could help lift prices," an LME dealer in Singapore said.
He added that investors would tend to shun commodity funds that are heavily weighted towards energy, such as the Reuters/Jefferies and the Goldman Sachs Commodity Investment fund , because of the forward structure of the oil market.
"Any new investment flows into commodity indexes will be directed away from energy and therefore towards metals and grains," he said.
Near-term oil prices are lower than those in the future, known as a contango market.
This means investment funds lose money when they roll their positions by selling contracts close to expiry and buying further forward, and rely outright price rises to make a profit.
In a backwardated market, where nearby prices are higher than those in the future, investors make a profit each time they roll.
While oil markets show a contango of around $2 per barrel between the spot price and the three=month futures contract, base metals, with the exception of copper, are in backwardation.
ANZ's Harrington said commodity index fund investments amounted to around $100 billion and could rise by a further $25 billion in 2007.
March Shanghai aluminium futures gained to 19,880 yuan from 19,810 yuan, while LME aluminium rose $10 to $2,715.
The cash to three months backwardation widened slightly to $77/82 a tonne, around a six-year high.
Nickel futures were up $300 at $32,700.
The premium for cash nickel above the benchmark futures
contract was $2,060/2,110 per tonne, up over $1,300 since the
start of the year.
Metal Prices at 0409 GMT
LME Cu 5765.00 15.00&
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