Shanghai copper up 1.5 pct, but imports may weigh

SHANGHAI, Jan 17 - Shanghai copper futures climbed 1.5 percent on Wednesday, tracking gains in London on Tuesday.

But Shanghai futures could come under pressure as merchants take advantage of stronger prices for prompt metal and import large tonnages of London Metal Exchange copper from nearby locations.

The most active March contract gained 770 yuan to 52,760 yuan ($6,772) a tonne at the midday break on Wednesday.

Dealers noted that demand in China appeared strong, illustrated by the premium for the February contract of 1,100 yuan a tonne above the March contract and a positive arbitrage between London and Shanghai prices.

"The strong spot market in China shows that consumers are buying and to fill that demand some astute players are positioning material in the region to take advantage of the higher prices," a dealer in Shanghai said.

"About a third of the stock in Korean warehouses is cancelled and can be shipped out to China very quickly."

On Tuesday, LME copper stocks in South Korea totalled 37,825 tonnes, of which 13,700 or 36 percent are on cancelled and are earmarked for delivery. Global LME stocks stand at 196,900 tonnes and the ratio of cancelled warrants is just over 9 percent. "There will be a lot of copper shipped to China by mid-February," Zhang Heng, analyst at Jinrui Futures.

The first trader noted business had been brisk in the first two weeks of 2007.

"I think we may be seeing the return of the Chinese consumer. There has certainly been a lot more buying at the start of this year than we saw for much of 2006.

"There was a huge amount of de-stocking judging by the slowdown in imports last year when people were making more material available domestically. That can't go on forever."

Chinese trade data earlier this week showed refined copper and copper alloy imports fell 32 percent in 2006. [ID:nPEK270139]

Spot copper prices in Shanghai were up 125 yuan, quoted between 55,200 yuan and 55,400 yuan.

Copper for delivery in three months on the London Metal Exchange was lower at $5,645 a tonne at 0405 GMT, from $5,715 at the close on Wednesday, when prices gained 1.5 percent.

March Shanghai aluminium futures fell to 19,440 yuan from 19,610 yuan, but LME aluminium gained $2 at $2,683.

London aluminium has been supported by a dominant large position which has left the market tight ahead of the contract expiry later on Wednesday.

"Aluminium's short-term direction will become clear following the settlement of the third Wednesday pricing and the fate of the long position." Deutsche Bank analyst Peter Richardson said in a note.

There were two dominant long positions in aluminium, each holding between 10 and 19 percent of the open interest or outstanding contracts and two smaller longs with between 5 and 9 percent, according to latest LME data.

Data from January 12, showed one position in excess of 40 percent and a second holding 10-20 percent.

Against the February date, there is one long with between 10 and 19 percent of the open interest and two with between 5 and 9 percent. However. there was also a large short position.

"There is a big short against the February date -- upwards of 40 percent of the outstanding open interest. That could get quite messy," the first dealer said.

The squeeze has caused the premium for cash metal above the three-months price to hit $120 on Monday, up from $30 at the start of 2006 and the highest since 1990.

 On Wednesday, the cash to three-months spread eased
slightly to $86/88.
 Metal Prices at 0405 GMT
 LME Cu         5645.00        -70.00       -1.22
 SHFE Cu*      52190.00        670.00