SHANGHAI (Dow Jones)--Base metals on the Shanghai Futures Exchange were mostly higher Monday as investors continued to react positively to Federal Reserve Chairman Ben Bernanke's decision Friday to leave the door open for additional accommodative measures.
The modest gains came despite renewed concerns over domestic liquidity conditions after China's central bank asked banks to hold more types of deposits in reserve effective from Sept. 5.
Benchmark November copper settled 0.2% higher at CNY67,350 a metric ton.
After opening slightly higher, SHFE briefly came under pressure as investors shifted focus back to domestic issues as expectations from Bernanke's speech had mostly been factored in Friday's gains.
"Investors had expected Bernanke wouldn't indicate any immediate stimulus measures to prop up the U.S. economy, so the PBOC move pretty much took centerstage in the morning," Shanghai Cifco Futures senior analyst Wang Zhouyi said.
China's central bank requires banks to include so-called "margin deposits," or collateral deposited by customers for letters of credit and other guarantees, in calculating the proportion of deposits they must put aside for the required reserve ratio, a memo circulated within a major domestic bank showed.
With the official bank reserve requirement ratio now 21.5%, the move could take CNY800 billion to CNY900 billion out of the system by the time it is fully implemented in February, economists said.
SHFE copper reversed course late morning and continued to climb higher in the afternoon session, though mildly, as participants viewed Bernanke's commitment to further support the U.S. economy as positive for metal prices.
"The U.S. will still have a relatively loose monetary policy, regardless of QE3 or not, which means the dollar will likely remain under pressure against other currencies, and that is a good thing for metals as they are priced in the greenback," a trading manager at a large domestic brokerage in Shenzhen said.
Still, analysts and traders said metal prices will be closely linked to macroeconomic conditions in the U.S. and Europe, while copper should be well supported in the long term by expected supply constraints and firm demand from China, the world's largest consumer.
Copper traded at the Changjiang Nonferrous Metals Trading Market, a major spot metals market in Shanghai, was quoted at CNY67,350-CNY67,450/ton, up from CNY67,250-CNY67,300/ton Friday.
Three-month London Metal Exchange copper ended Friday's afternoon kerb $45 higher at $9,075/ton.
LME is closed for a public holiday and will resume trading Tuesday.
Aluminum settled almost flat, zinc added 0.4% and lead gained 0.5%.
Monday's settlement prices in yuan a ton and LME late kerb prices from Friday in dollars a ton:
Metal SHFE LME
Copper Nov 67,350 Up 160 3Mo 9,075 Up 45.0
Aluminum Nov 17,360 Down 5 3Mo 2,376 Up 11.0
Zinc Nov 17,115 Up 65 3Mo 2,247 Up 19.0
Lead Oct 16,855 Up 80 3Mo 2,480 Up 78.5
-Yue Li contributed to this article; Dow Jones Newswires; (8621) 6120 1200; yue.li@dowjones.com
