Shanghai metals retreat on profit taking

Profit taking dragged Shanghai copper 4.7 percent lower yesterday after it hit a 7-month peak in the previous session, tracking softer London futures in the wake of hefty stock rises.

Shanghai zinc also came under pressure, dipping to within a whisker of its 6 percent downside limit as smelters in the snow-hit city of Qujing prepared to restore production.

The May copper contract, the most active on the Shanghai Futures Exchange, fell 3,300 yuan, or 4.7 percent, from Monday's close, to 66,700 yuan, having touched the highest since July 2007 in the previous session.

Copper's downside limit was 66,480 yuan.

"Commodity prices in China are likely to retreat and the tightness across a number of markets is going to loosen a little," a trader in Hong Kong said, adding that as a result, investors were cashing out and taking profits.

Shanghai spot copper prices fell 1,475 yuan to between 66,000 and 66,300 yuan. Physical copper was selling at a discount of about 400 yuan a ton to the spot price.

Copper for delivery in three months on the London Metal Exchange fell $70 to $8,130 a ton at 0703 GMT.

London futures hit their highest in nearly two years, at $8,485 on Monday, before retreating under pressure from a 7,625-ton rise in stockpiles, the second jump in as many days.

Stocks have risen around 10 percent since last Wednesday to 149,225 tons.

Traders said that the recent influx of metal, mostly into warehouses in South Korea, might be material originally taken out of storage for sale to China, but then re-warranted as Chinese spot prices have failed to keep up with the surge on the LME.

"The current price ratio means there is no advantage for Chinese imports and as a result some metal is going back into warehouses," the Hong Kong trader said.

Shanghai May zinc fell 1,385 yuan or 6.4 percent from the previous close, to 20,420 a ton, after jumping by its daily limit in the previous session. Prices earlier dipped to within 5 yuan of their downside limit at 20,245.

"Spot zinc is trading at a discount in China's physical market, suggesting that output cuts have not led to a serious supply shortage," said analyst Pang Ying at trading house Rongtop.

"News of restarts at major smelters is further easing the market concerns."

Two medium-sized Chinese zinc producers who curbed output earlier this month are set to restore full operations this week after Qujing city power supplies recovered from a snowstorm, company officials said on Monday.

Agencies

(China Daily 02/27/2008 page15)