Rising LME stocks cap copper in volatile trading

Clerks trade on the floor of the London Metal Exchange in central London March 18, 2008.

LONDON (Reuters) - Copper eased on Monday in volatile trading as warehouse inventories rose and investor interest was drawn to upbeat equity markets.

Copper for delivery in three months shed $20 to $8,640/8,641 a tonne by 1:36 p.m., after rising 1.2 percent on Friday.

Traders at the LME floor said volumes were low.

"It's very quiet here today," one LME trader said.

Another LME trader said investors might be moving their money into buoyant equity markets, away from copper. World equities hit a fresh one-month high on Monday, bolstered by easing concerns over banks' credit-related troubles.

Copper hit an intraday high of $8,744 before falling to an intraday low of $8,605 -- still close to its all-time high of $8,820 it recorded on March 6.

"It seems like the rise in stocks depress prices," another LME trader said.

LME inventories rose 1,000 tonnes to 116,150 after showing their first weekly rise since mid-February on Friday. But the total is only enough for around two days of global consumption.

Analysts said prices might also drift down as Chinese consumption in the second quarter could disappoint as high prices and deteriorating markets cut end-user demand.

But copper futures prices might test a new record high as supply problems persist, analysts said.

"At these prices there is still some demand but prices will have to consolidate a bit in the next month before they can go to another level," analyst Eugen Weinberg at Commerzbank said.

He expected copper to trade in a range between $7,500 per tonne to $8,500 in the next month, before going higher supported by supply woes such as looming strikes and power shortages.

"I wouldn't rule out seeing prices at $10,000," he said.

FUNDS, SUPPLY WOES SUPPORT

Copper is Citigroup's preferred metal among the base metals and the bank upgraded this year's forecast by 14.7 percent to $3.556 per pound in a report. In 2009, it expected a price of $3.50 per pound ($7,716/t).

The investment bank said production losses supported prices with 800,000 tonnes lost in 2007 versus expectations.

"In 2008 the trend continues: 200,000 tonnes have been lost already, mainly from existing operations," the report said.

Copper has gained 30 percent so far this year and a Macquarie Bank report said fund buying had been an important element behind the rise in prices.

"An extra $30 billion allocated to long commodity products together with hedge fund shortcovering in copper is a powerful additional driver," the weekly report said.

It added mine supply losses had been sufficient to eliminate the bank's forecast of a surplus for this year.

The Macquarie Bank report said previous worries about a slowdown in demand from the United States had not been realised and that demand had held up at similar levels to a year ago.

In other metals, official data showed Indonesia's refined tin exports were seen falling to 8,606.27 tonnes in March from 8,699.24 tonnes in the same month last year.

Mining shares rose on Monday, driven by a note from Goldman Sachs, with Anglo American (AAL.L), Kazakhmys (KAZ.L) and Antofagasta (ANTO.L) up between 4 and 6 percent. <ID:nWNA1535>

Nickel MNI3 dropped $700 to $28,500 at mid-session as stocks in the metal were up. Other base metals rose.

Aluminium MAL3 gained $7 to $2,960 and lead MPB3 $20 to $2,960. Tin MSN3 gained $300 to $20,500 and zinc MZN3 $25 to

$2,390.

(Additional reporting by Anna Ringstrom, Editing by Nigel Hunt)