Copper sentiment capped by concerns of weak demand

The red metal jumped last week as investors anticipated the return of China

LONDON (Reuters) - 

Copper prices rose on Tuesday, with overall sentiment capped by concerns that prices had run ahead of weak demand, as a weaker dollar supported.

By 1025 GMT, copper for three-month delivery MCU3 on the London Metal Exchange was at $6,300 a tonne from $6,275 at the close on Monday and compared with a session high at $6,303.

Highlighting the underlying weak demand, LME inventories for copper, used in power and construction, rose 575 tonnes to remain near five-months highs at 347,950 tonnes. <LME/STX1>

Copper prices rose almost 6% last week, as traders eagerly anticipated the return of China, the world's largest metals consumer, from a week of holidays.

"Last week everyone was afraid that the Chinese would be buying heavily after coming back from Golden Week and everyone was afraid to have short positions," said Eugen Weinberg, an analyst at Commerzbank.

"But this week that seems to be changing in advance of import data from China which could be a negative surprise."

China is due to announce September copper imports on Wednesday, which are expected to fall for a third consecutive month, after record imports in the first half of the year.

"That would be a real blow to the bulls as the story of China buying at any price might be blown up," added Weinberg.

Chinese stockpiling, improving macro data and new investor cash have helped copper prices more than double this year.

But with Chinese stockpiling efforts slowing and persistent doubts over the pace of a global economic recovery, metals and mining industry executives gathering at the annual London Metal Exchange week, have spoken about metal prices running ahead of fundamentals.

Highlighting those concerns, Freeport-McMoRan Copper & Gold Inc (FCX.N) said on Monday the copper market's prospects for next year are as yet uncertain and a strong Chinese economy will be key to demand.

Analysts also said the approaching strike at Chile's Spence copper mine is unlikely to have a significant impact on the market, but could give clues on how other labour talks will pan out.

Investors kept close tabs on currency markets, with the dollar falling to remain near recent lows. A weak U.S. currency makes metals priced in dollars less expensive for holders of other currencies. [USD/]

In other base metals, aluminium MAL3 rose $17 to $1,964. Inventories for the metal, used in transport and packaging, slipped 2,425 tonnes to remain near record highs close to 4.6 million tonnes.

"High inventories and high prices are keeping buyers in a holding pattern currently," said investment bank Fairfax in a note.

Steel making ingredient nickel MNI3 traded at $18,050 from $18,820 while battery material lead MPB3 was at $2,249.75 from $2,294.

Zinc MZN3 was at $2,110 a tonne from $2,094 and tin MSN3 traded at $14,700 from $14,675.

Investors in tin, used in electrical solder, remain concerned about supplies because of a dominant position controlling more than 90 percent of cash warrants on LME stocks.

(Additional reporting by Veronica Brown; editing by Sue Thomas)

© Thomson Reuters 2009 All rights reserved

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