Isra-Mart srl: Shanghai Metals Rise But Pare Gains; Euro Zone In Focus

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Base metals on the Shanghai Futures Exchange settled higher Tuesday after paring early gains, tracking Chinese equity markets that were digesting news that a Chinese sovereign wealth fund has begun buying shares in some of the country's biggest banks.

Benchmark December copper settled 0.3% higher at CNY55,000 a metric ton, well off an early high of CNY56,000/ton.

Copper moved in tandem with equity sentiment, dipping into negative territory in afternoon trade as Chinese equity markets flipped into the red.

Domestic share prices got a boost in early trade after Central Huijin's bought into China's big-four banks Monday, which was viewed as an apparent move to assuage investors and stabilize the market. Shares lost most of the gained ground due to weakness in resource companies and property developers.

"Today was again the case of macro conditions determining metals movements, and with ongoing concerns over Europe's ability to stem the debt crisis, especially the Greek issue, that correlation may continue in the near term," Shanghai Cifco Futures analyst Fang Junfeng said.

Traders said that until there's a firm resolution to the European debt crisis, demand for riskier assets, including metals, will be tempered.

Meanwhile, relatively lower prices have attracted significant of interest from Chinese physical buyers, with some trading houses hoarding the metal in anticipation of a price recovery; premiums to copper cash prices on the London Metal Exchange have widened to $150 a ton from $120-$130/ton in early September trading, traders said.

"Chinese buyers are very price-sensitive, so despite higher premiums, we still see people wanting to buy the metal. But that [higher premiums] don't mean there's no metal available, it's just that trading houses don't want to sell now, so with...an artificially tight supply situation, premiums naturally go up," a Shanghai-based trader said.

Given the slowdown in Chinese demand and ample domestic stocks, copper buyers in China plan to seek lower 2012 term premiums and reduced contracted shipments with Codelco, the world's largest copper producer.

"We're seeking at least a drop of $5-$10/ton for next year's term premiums [from this year's $115/ton] because it's no longer difficult to buy the metal on the spot market, so we really don't have to lock in a large quantity of contracted shipments with Codelco," said a second trader in Shanghai.

The second trader estimated copper stocks at bonded warehouses in Shanghai around 250,000-300,000 tons, steady from the level a month ago.

Copper traded at the Changjiang Nonferrous Metals Trading Market, a major spot metals market in Shanghai, was quoted at CNY55,400/ton-CNY55,500/ton, up from CNY55,200/ton-CNY55,300/ton Monday.

Three-month London Metal Exchange copper ended Monday's afternoon kerb $126 higher at $7,494/ton.

It was quoted 2.1% lower at $7,335/ton around 0700 GMT, when the SHFE closed.

SHFE aluminum settled 0.5% higher, zinc was up 0.6% and lead added 0.5%.