Shanghai copper up, LME eases, brace for Fed

SINGAPORE - Shanghai copper gained more than half a percent on Monday, despite a slight fall in London futures, but the market was unlikely to move much until a U.S. Federal Reserve meeting on Tuesday. The Fed is widely expected to cut interest rates by at least 25 basis points with some analysts calling for an even bigger reduction. "All eyes will now be on the U.S. Fed meeting ... in order to glean an improved picture of the current state of the U.S. economy and possible future direction," Standard Bank, London, said in a daily report. U.S. August retail sales rose less than expected, data on Friday showed, supporting the view the Fed may need to cut rates aggressively. "But, if the Fed makes a modest cut, you will see competing pressures in base metals," National Australia Bank analyst Gerard Burg said. A 25-basis-point cut could help lift the dollar, which has slumped to record lows against the euro raising the cost of dollar-denominated base metals for holders of other currencies. At the same time, a smaller cut would also signal that the Fed believes the U.S. economy is relatively healthy and demand is expected to remain strong. "The market's reaction will depend on how much of the slide in metal prices in the past month or two was on concerns about slowing demand and how much was due to hedge fund selling to cover margins in other markets," Burg said. With all eyes on the Fed, markets brushed off Friday's interest rate rise in China. The country's central bank raised rates by 27 basis points, its fifth rise this year, as part of its strategy to cool growth and moderate inflation. However, China's main stock index surged to an all-time high on Monday. "The interest rate hike was widely expected and it won't be the last we see this year as liquidity continues to flood China," said analyst Wang Zheng at Fubao Metals. "It is just another step in the process, and I think Chinese markets, including stocks and commodity futures, are used to it by now." Shanghai's November copper contract the most active, closed up 340 yuan at 66,140 yuan a tonne on Monday. Spot copper in Shanghai was up 75 yuan, trading between 65,650 and 65,850 yuan. China imported 104,838 tonnes of refined copper and copper alloy in August, down 10.3 percent from July. Imports in the first eight months of the year reached 1.22 million tonnes, up 96.4 percent from a year earlier. Net imports were 1.13 million tonnes. Copper for delivery in three months on the LME fell $10 to $7,540 a tonne at 0701 GMT. On Friday, copper touched a one-month high of $7,622. Burg said metals prices could push higher in the next few weeks with the end of the summer holiday period in the northern hemisphere. "But prices will resume a downward track towards the end of the year and further easing is expected in 2008." In industry news, three towns in northern Peru voted against Chinese miner Zijin's $1.4 billion Rio Blanco copper project on Sunday on fears the mine would pollute rich agricultural lands, organizers of the votes said. LME aluminium was flat at $2,430 a tonne. Aluminium stocks in warehouses rose to 901,200 tonnes, up some 70,000 tonnes, their highest since July 2004. Zinc was up $10 at $2,850 a tonne. "We have been significantly impressed by zinc and the continued fall in available metal and the more favourable Chinese arbitrage situation should mean that we see a pick-up in zinc prices in the near future," Standard Bank said. Zinc stocks stand at 72,750 tonnes, down 90 percent from March 2004.