UPDATE 2-LME copper spreads flare; Shanghai up

(Updates prices to Shanghai close)

By Nick Trevethan

SINGAPORE, June 16 (Reuters) - The premium for London Metal
Exchange cash copper was at a two-year high on Monday as
speculators who had bet on falling prices covered positions
ahead of the June prompt date on Wednesday.

London Metal Exchange copper MCU3 for delivery in three
months fell $25 to $7,955 a tonne at 0727 GMT. Prices jumped
$145 on Friday, while the cash to three months MCU0-3 spread
flared to a $170/180 backwardation.

"Shorts have piled up over the past few months, betting on
the weak macro-economic outlook and it looks like someone is
trying to get out of those positions ahead of the Third
Wednesday," a dealer in Singapore said.

"There's nothing else that would cause the spread to widen
like this. Stocks are pretty low historically, and I believe
those stocks are fairly tightly held, but this looks like
short- covering to me."

The most active Shanghai August copper SCFQ8 contract on
the Shanghai Futures Exchange rose 570 yuan, or 1 percent, to
60,850 yuan ($8,817) a tonne at the close.

"Supply has fallen. May imports were down," said Pang Ying,
an analyst at trading house Runtop.

China's production of refined copper rose 18.3 percent in
May to 323,800 tonnes, while aluminium output rose 21.3 percent
to 1.16 million tonnes, data showed on Monday. [ID:nPEK248392]

But the rise has not been enough to totally offset the 25
percent decline in copper imports, according to interim data,
forcing buyers to raid Shanghai warehouses for metal.
[ID:nPEK282260]

Shanghai copper inventories fell 12 percent to 33,992
tonnes last week and are down 50 percent since mid-March.
<0#SGH-STOCKS>

The Singapore trader also noted that the spread between the
expiring June contract in Shanghai and the third month had
widened to a 1,000 yuan premium, suggesting growing tightness.

The gap in prices between the London and Shanghai copper
markets widened to 3,555 yuan, from 3,491 yuan on Friday,
including Chinese value-added tax, well down from a record
6,549 yuan on April 18.

LME lead MPB3 rose $5 to $1,780, after Friday's 3 percent
slide. Stocks jumped almost 7 percent to just below 80,000
tonnes on Friday.

"Many agree that lead looks oversold since fundamentals are
still pretty strong and hence bargain hunting should take place
(this) week," brokerage Triland Metals said in a note.

Technically, lead's relative strength indicator reading of
21 shows it well below the oversold threshold of 30 and primed
for a bounce after falling steeply since March, Triland said.
Metal Prices (per tonne) by 0721 GMT:
Metal Last Change Pct Move End 2007 Pct chg
08
LME Cu 7955.00 -25.00 -0.31 6670.00
19.27
SHFE Cu* 60850.00 570.00 +0.95 56880.00
6.98
LME Alum 2948.00 3.00 +0.10 2403.00
22.68
SHFE Alum* 18805.00 -80.00 -0.42 18180.00
3.44
COMEX Cu** 361.25 1.85 +0.51 304.10
18.79
LME Zinc 1890.00 -10.00 -0.53 2370.00
-20.25
SHFE Zinc 15665.00 -65.00 -0.41 18950.00
-17.34
LME Nickel 24000.00 0.00 +0.00 26350.00
-8.92
LME Lead 1780.00 5.00 +0.28 2550.00
-30.20
LME Tin 21100.00 100.00 +0.48 16400.00
28.66
LME/Shanghai arb^ 3555
** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminium, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month
($1=6.901 Yuan)
(Additional reporting by Rujun Shen in Shanghai; Editing by
Michael Urquhart)