SHANGHAI - Shanghai copper has hit a more than 2-1/2-month high, catching up with London's price rally in the past two days after initial reluctance, but concerns of a sluggish physical market and liquidity weigh.
Investors are closely watching central bank moves on monetary policy with China's central bank on Wednesday reaffirming its appropriately loose monetary stance while also saying it would implement policy more flexibly.
"Investors care more about liquidity, as there is more speculative buying than consumer buying in the market these days. If liquidity remains intact, metals will stay strong," a Shanghai-based trader said.
China's vast manufacturing sector picked up speed in March as orders climbed, two business surveys showed on Thursday, pointing to brisk first-quarter GDP growth that could spur further policy tightening.
Shanghai's benchmark third-month copper futures contract hit 62,400 yuan a tonne, highest since January 11, before easing to end at 62,200 yuan, up 1.4 per cent, after a modest 2.4 per cent rally last quarter.
The most-active contract for July delivery rose 1.4 per cent to 62,520 yuan a tonne.
Three-month copper on the London Metal Exchange rose $US66.5 to $US7,846.5 a tonne by 0700 GMT, holding firm below the 19-month peak of $US7,878 hit earlier in the week. LME copper rallied 6 per cent in the first three months of year.
The premium of LME over Shanghai copper prices narrowed to 476 yuan from 752 yuan at the previous close.
"Copper prices will likely flip-flop around current levels, before riding higher again. The demand outlook is good as it is traditionally the peak consumption season, but investors are also wary of possible liquidity tightening," said Lin Yuhui, deputy general manager of Jinhui Futures.
Lin expected Shanghai copper to break through a high of 64,180 yuan hit in early January, its highest since the middle of 2008, once the consolidation at current levels finished.
Shanghai copper may continue the upward momentum on Friday, when LME closes for holiday. But a strong rally is unlikely as investors wait cautiously for the key US non-farm payrolls data due that day.
"There's still quite strong resistance above the current level. If prices break above the previous high, we'll see a lot of sell-off," said Fang Junfeng, an analyst at Shanghai CIFCO Futures.
Spot copper prices in Shanghai remained weak, while copper stockpiles in warehouses monitored by the Shanghai Futures Exchange was just below a 7-year high at 155,465 tonnes last Friday.
LME copper inventories fell throughout March, down 575 tonnes to 514,325 tonnes on Wednesday, their lowest since January 8 - something taken as a sign of rising global demand.
Japan's two major copper smelters, Mitsubishi and Sumitomo, said they plan to boost production in the first half of the financial year that began on Thursday but they remained wary about the demand outlook due to uncertainty over Japan's economy.
Shanghai zinc hit 19,355 yuan, highest since late February, before ending at 19,245 yuan, up 2.4 per cent. But it remained the underperformer in metals traded on the Shanghai exchange, down more than 9 per cent so far this year.
LME zinc edged up $US14.75 to $US2,389.75, after hitting a 3-week high of $US2,408.5 in the previous session.
