Shanghai copper down 4 pct on LME slump

SINGAPORE, Feb 5 - Shanghai copper futures fell 4 percent on Monday, touching their daily downside limit after London futures lost nearly 5 percent on Friday on reports of large losses at a major hedge fund.

The most active April contract was down 2,200 yuan at 50,180 yuan ($6,470) a tonne at the midday break, after prices earlier touched their daily downside limit at 50,010 yuan when the market reacted to Friday's 4.8 percent slide in London.

"The report referring to Red Kite may spur more funds to cut their overweight positions in London and press the prices down further, there and in Shanghai," Cai Luoyi at China International Futures said.

Markets fell on Friday after a report in the Wall Street Journal that hedge fund Red Kite had lost 20 percent in the first days of January and wanted to extend the redemption notice period for investors to 45 days from 15.

"Chinese firms are keeping their distance as they expect steeper drops in the market," Cai said.

Copper for delivery in three months on the London Metal Exchange was up $20 at $5,350 a tonne by 0412 GMT, after shedding $270 on Friday and dipping to a 10-month low in New York .

"This move has been coming for a while. There should be some scale-up selling toward $5,400 capping the market while consumer interest at $5,200 is supporting," an LME dealer said.

Red Kite declined to comment on the Wall Street Journal report, but it said it had sent investors a note seeking a longer notice period for those who wanted to withdraw their money.

"As you get bigger, your positions get bigger and it takes a longer notification period, it's as simple as that," Oskar Lewnowski, an official for the hedge fund in New York, told Reuters. [ID:nN02260633]

Analysts said confidence had been dented and investors may take up opposing positions which could be expensive for a shaky long.

"While people think your long is stable you are safe, but if you start to wobble, they scent blood in the water. You might not attract a shark, but it could well attract a bunch of piranha," ANZ analyst Andrew Harrington said.

Shanghai spot copper prices were down 1,575 yuan at 53,000 yuan to 53,300 yuan.

Zinc , which shed nine percent on LME on Friday, was down $5 at $3,080.

"There was no fundamental reason for the move in zinc. This is just another example of capricious short-term investing mentality," Harrington said.

The most traded April Shanghai aluminium futures contract fell to 19,490 yuan from 19,510 yuan.

LME aluminium was up $2 at $2,722, with the cash to three months spread at a wide $115 backwardation. Aluminium shed 1.2 percent on Friday.

"Primary aluminium once again failed to make progress on the upside despite bullish chatter around the market," Sempra Metals economist John Kemp said in a report.

"Closes over the last few days have been disappointing for the longs. They suggested a distinct loss of momentum," he said.

Nickel was down $100 at $37,300 a tonne, but distinguished itself on Friday as the only contract to score a gain.

Stocks in LME warehouses were down 144 tonnes at 3,222, their lowest since 1991, while the premium for cash metal was a wide $3,125/3,225 a tonne above the benchmark future.

Of the total stocks, 822 tonnes are earmarked for delivery, leaving 2,400 tonnes to support the 1.4 million tonne-per-year market.

 Nickel hit a record $38,950 on Jan. 26.

 Base metals prices at 0412 GMT
 Metal             Last     Net Change    Pct Move
 LME Cu         5350.00         20.00       +0.38
 SHFE Cu*      50180.00