UPDATE 3-Shanghai copper ticks up as supplies tighten

(Updates prices to Shanghai close, adds zinc restarts)

By Nick Trevethan

SINGAPORE, May 20 (Reuters) - Shanghai copper futures edged
higher by Tuesday's close, reversing early losses, as lower
prices attracted light consumer buying and supplies in China
showed signs of tightening.

The August copper contract SCFQ8, the most traded on the
Shanghai Futures Exchange, closed 110 yuan higher at 62,960
yuan ($9,033).

"Copper supplies have turned somewhat tighter in the
physical market this week, which is supporting futures prices,"
said analyst Cai Luoyi at China International Futures.

"Copper stockpiles are declining after large exports in
previous months, and consumption is holding at normal levels."

For the first time since mid-March, some buyers were
willing to pay a small premium of 150 yuan above the prompt
month, reflecting a belief that supplies were tightening, local
traders said.

Copper for delivery in three months on the London Metal
Exchange MCU3 rose $35 to $8,350 a tonne by 0728 GMT, after
shedding 1.5 percent in the previous session following a rise
in stocks on Monday.

"Stocks are becoming a bit of an issue," MF Global analyst
Edward Meir said. "There were big rises in copper and aluminium
and despite the dollar weakness, both metals came under
pressure."

LME copper stocks fell 75 tonnes, following a 1,500-tonne
rise, to stand at 122,650 tonnes. Aluminium inventories jumped
22,175 tonnes to 1.07 million tonnes, the highest since mid
2004.

The gap in prices between the London and Shanghai copper
markets narrowed to 5,116 yuan from 6,217 yuan on Monday,
including Chinese value-added tax. The spread hit a record
6,549 yuan on April 18.

Oil prices CLc1 held above $127 a barrel, trading at
$127.11, not far from Friday's record $127.82, and analysts
said oil's influence on inflation and global growth rates was
becoming a serious concern for metals investors.

"The rising oil price is very inflationary and central
banks will have to act," Meir said.

"The Chinese are already doing so, the ECB is standing pat
despite slowing growth, and even in the United States there is
talk that we are done with the rate-cut cycle."

ZINC LOSSES

Shanghai's most-active July zinc contract SZNN8 fell 275
yuan to 18,515 yuan.

Most lead and zinc mines in quake-affected areas, including
Baiyin Nonferrous Metals' 70,000 tonne-per-year lead and zinc
operation, remain shut on government orders, but smelters are
managing to restart.

Sichuan-based Nanfang Nonferrous Metals expects to restart
zinc production at its 10,000 tonne-a-year smelter in Deyang
city within a week and Hanzhong Bayi Zinc Industry has
restarted more than 80 percent at its 120,000 tonnes-a-year
smelter in southern Shaanxi, company officials said.
[ID:nSP41864]

Sichuan Hongda Co, the top zinc producer in the quake-hit
province and , said 74 workers had died in the tremors and
damage to its zinc and chemical operations would cost 387.7
million yuan of which 286.6 million yuan were fixed assets.

Macquarie estimated zinc production losses across Sichuan
and neighbouring areas, will total 20,000-30,000 tonnes, but
traders in China think the damage may have been more severe,
suggesting total losses from the quake at around 50,000-60,000
tonnes.

For a factbox on the impact of the quake on China's metals
industry, click on: [ID:nSP23019]
Metal Prices by 0734 GMT:
Metal Last Change Pct Move End 2007 Pct chg
08
LME Cu 8350.00 35.00 +0.42 6670.00
25.19
SHFE Cu* 62960.00 110.00 +0.18 56880.00
10.69
LME Alum 3005.00 10.00 +0.33 2403.00
25.05
SHFE Alum* 19280.00 -55.00 -0.28 18180.00
6.05
COMEX Cu** 380.10 0.55 +0.14 304.10
24.99
LME Zinc 2260.00 -28.00 -1.22 2370.00
-4.64
SHFE Zinc 18535.00 -265.00 -1.41 18950.00
-2.19
LME Nickel 26100.00 25.00 0.10 26350.00
-0.95
LME Lead 2240.00 10.00 +0.45 2550.00
-12.16
LME Tin 24100.00 100.00 0.42 16400.00
46.95
LME/Shanghai arb^ 5116
** 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=6.970 Yuan)
(Additional reporting by Polly Yam; Editing by Clarence
Fernandez)