Singapore 27/06/2016 - The base metals ended with strong gains on the SHFE during Asian trading hours on Monday - the most active SHFE copper contract closed two percent higher - surprising market participants who were expecting risky assets to dip after the Brexit vote on Friday.
The most active SHFE August copper contract closed 750 yuan higher at 36,720 yuan per tonne, with 337,584 lots changing hands.
Several market participants described the huge gains for base metals as 'strange' and 'surprising' but noted that there was likely to be a variety of reasons that could have led to Monday's increases.
One leading reason may have been the sharp jump in the SHFE rebar contract price, which hit its trading limit on Monday. The SHFE October rebar contract closed 5.4 percent higher at 2,268 yuan, with 7.6 million lots changing hands in the day.
The surge in the SHFE rebar price was triggered by news of a possible merger between two major Chinese steelmakers, Baosteel and Wuhan Steel, which could mean more Chinese steel production capacity could be eliminated - Beijing has pledged to crack down on this area.
The gains in non-ferrous metals prices were also due to short-covering, sources said.
Open interest for the SHFE August copper contract was at 204,394 positions at Monday’s close, down from 218,592 positions at Friday's close. Open interest for copper is now at the year's low, an analyst with a Beijing-based futures brokerage noted.
"There is little interest in SHFE copper among funds these days because there are no strong demand and supply factors to drive the copper price one way," she said.
Others also noted that the odds of an increase in US interest rates this year have diminished significantly after the Brexit vote, which could be a boon for risk assets.
Some support also came from the latest data from the Chinese National Bureau of Statistics, which showed total profits among China's non-ferrous metal smelters and fabricators rising 13.4 percent year-on-year in January-May - an improvement from the growth of 6.6 percent in January-April.
In equities, the Shanghai Composite finished 1.45 percent higher at 2,895.70 on Monday.
In other metals, the SHFE August aluminium contract closed 205 yuan higher at 12,375 yuan and the SHFE August zinc contract finished at 15,685 yuan, up 190 yuan.
The SHFE lead contract rose 120 yuan to 12,850 yuan and the SHFE September nickel contract surged 1,180 yuan to 71,650 yuan. Tin jumped 2,280 yuan to end at 112,880 yuan.
(Editing by Mark Shaw)