METALS-Weak demand, higher stocks to challenge copper bulls

By Pratima Desai

LONDON, Feb 9 (Reuters) - Copper prices rose on Monday as the dollar declined, but weak demand prospects, particularly in top consumer China along with climbing inventories are expected to challenge bullish sentiment in industrial metal markets.

Benchmark copper CMCU3 on the London Metal Exchange traded 0.4% higher at $13,043 a metric ton in official rings. Prices have dropped 10% since hitting a record peak at $14527.50 on January 29.

A softer U.S. currency makes dollar-priced metals cheaper for holders of other currencies, a relationship used by funds in numerical models to generate buy and sell signals.

Traders say the market is still dominated by these funds and other speculators, as it has been in recent weeks. They expect volumes to dwindle as economic activity stalls over the next few weeks due to China's Lunar New Year holiday .

"Recent price highs appear increasingly disconnected from underlying industrial fundamentals, particularly as evidence of slowing real world demand becomes more apparent," said analysts at Britannia Global Markets in a note.

"In China, copper buyers are extending Lunar New Year shutdowns, while fabricators have reduced spot purchases amid margin pressure and elevated inventories."

Copper stocks in LME approved warehouses at 184,300 MCUSTX-TOTAL, are up 25% since January 9, while those in warehouses monitored by the Shanghai Futures Exchange CU-STX-SGH at 248,911, have jumped more than 60% since December 19.

Expectations of weak Chinese demand are highlighted by the Yangshan copper premium SMM-CUYP-CN, a gauge of China's appetite for importing copper. It has recovered from $20 a ton on January 28 to around $37 a ton, but is still too low to indicate strong demand.

The spoltlight this week will fall on employment and consumer price data from the United States which could influence the direction of U.S. interest rates and the dollar.

In other metals, aluminium CMAL3 gained 0.7% to $3,107.5 a ton, zinc CMZN3 was flat at $3,346, lead CMPB3 ceded 0.4% to $1,953, tin CMSN3 rose 4% to $48,600 and nickel CMNI3 rose 0.9% to $17,250.