Shanghai copper rises on LME gains, aluminium softer

TAIPEI (Reuters) - Shanghai copper prices rose over 1.5 percent on Wednesday, tracking modest gains in London Metal Exchange prices, while aluminium softened a touch after hitting a six-month peak the previous session.

Nickel was mostly unchanged after touching a record high on Tuesday due to low levels of global stocks, while lead was untraded after also hitting a peak the previous session.

Chinese copper futures prices rose, with the most active February contract ending the morning session up 980 yuan at 64,920 yuan per tonne.

Copper for delivery in three months on the London Metal Exchange fell to $7,110 a tonne by 0400 GMT, against $7,175 at the London close on Tuesday, when it had posted earlier gains above $7,200 and much firmer from under $7,000 during Asian trade.

"The fact that prices failed to break lower suggests a certain amount of underlying buying and then Tuesday's rebound also suggests buyers, or short-covers, were prepared to chase the market higher too," said William Adams, an analyst at Basemetals.com in a daily note.

Movements in copper prices have been mostly restrained in recent weeks in comparison to other metals such as aluminium, as the market ponders how a slowing U.S. economy will impact demand.

"At least this is a sign of some strength returning to copper, even if it still ran into overhead supply above $7,225/t," said Adams.

Aluminium for three-month delivery was a little softer at $2,833 against the close of $2,841 a tonne on Tuesday, when it earlier had surged to a six-month peak of $2,851 a tonne, the highest since May.

A large amount of outstanding December call option contracts to buy three-month aluminium futures at $3,000 a tonne on the LME will mature at 1130 GMT.

Some in the market feel the gains could be due to holders of these positions ramping up prices before that time.

"After seeing such large gains, people feel there are some longs out there that are pushing the prices higher," said Wang Zheng, an analyst at Shanghai Dalu Futures.

Wang said easing tightness could stymie significant gains above $3,000.

Option holders can exercise their right to buy or sell the underlying metals future at a specified price at a fixed time.

The cash-to-threes on three month aluminium fliped to contango of $1 from backwardation of $10 on Monday, indicating additional supply.

The most active February Shanghai aluminium futures contract closed the morning session slightly firmer at 20,250 yuan a tonne, compared with Tuesday's finish of 20,180 yuan.

Nickel was mostly steady at $34,200 against $34,250 at the London close, following a surge to a new all-time high of $34,500 on low LME stocks.

Lead was untraded at $1,730 after also hitting a new high of $1,758 a tonne on Tuesday before closing at $1,735.