Copper Declines as Shanghai Price Premium to London Narrows

By Li Xiaowei

March 5 (Bloomberg) -- Copper fell from a three-month high in Asian trading as a narrowing of the Shanghai price premium over the London market may curb import demand from China, the world’s largest buyer.

The Shanghai premium dropped to about $530 a metric ton yesterday from about $730 a ton two weeks ago. Futures in China have climbed 24 percent this year, compared with a 21 percent gain on the London Metal Exchange.

“Because of the falling premium in Chinese prices, we’d expect March imports would only be sustained if the State Reserve Bureau keeps buying,” Li Ye, an analyst at Minmetals Starfutures Co., said from Shenzhen. “London copper will trade range-bound, factoring in changes in Chinese import prospects.”

Copper for delivery in three months on the LME fell 1.2 percent to $3,700 a metric ton, after jumping to the highest since November yesterday. The best-performing metal on the LME this year has gained on speculation Chinese demand may offset declines in the U.S. and Europe.

Copper inventories monitored by the LME shrank 0.9 percent to 526,025 tons yesterday, 4.1 percent less than this year’s peak on Feb. 25. Cancelled warrants, stockpiles already earmarked for delivery, rose 17 percent to 64,400 tons.

The drawdown in the LME stockpiles indicated China’s State Reserve Bureau is buying the metal, according to Macquarie Group Ltd.’s Adam Rowley.

Shanghai Futures

Copper for May delivery on the Shanghai Futures Exchange rose 0.9 percent higher to close at 29,500 yuan ($4,312) a ton after jumping as much as 4.7 percent earlier.

China will “significantly increase” investment in 2009, Chinese Premier Wen Jiabao said in his work report presented to the National People’s Congress in Beijing today. The nation needs to “reverse the economic slide as soon as possible,” he said, without announcing an increase to a 4 trillion yuan stimulus package.

“It’s improved sentiment from China that’s boosting copper, yet the boost may not last too long if a demand revival isn’t really there,” Fang Junfeng, an analyst at China International Futures (Shanghai) Co., said today. “We feel Chinese demand so far is still weaker than the same period last year, though better than in the West.”

Jiangxi Copper Co., China’s largest smelter, said the lack of scrap raw material is threatening its plan to raise production this year by 14 percent to 800,000 tons.

The Chinese company had to close a 50,000 ton capacity plant because of the lack of scrap, Chairman Li Yihuang said on the sidelines of the National People’s Congress in Beijing.

Among other LME-traded metals, aluminum was down 0.4 percent at $1,355 a ton, zinc lost 1.1 percent to $1,212, lead declined 0.9 percent to $1,170, nickel retreated 0.4 percent to $9,990 and tin added 0.4 percent to $10,950.

To contact the reporter on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net