Stocks weigh on copper but market eyes gains

LONDON, Jan 26 - Rising stocks knocked copper market sentiment on Friday, but analysts say expectations of strong demand growth from China will underpin the metal and possibly push prices back above $6,000 over coming days.

Nickel for three months delivery on the London Metal Exchange touched a new all-time high of $38,950 a tonne on worries about low stocks and supply shortages, while tin was hovering below this week's record high of $12,500.

Three-month copper traded down at $5,755 a tonne in the official rings from $5,850 on Thursday, when it touched a two-week high of $5,910.

"There is some profit-taking going on in copper, but it could go higher again in the afternoon," a trader said. "It's quite possible we could see $6,000 within days."

Stocks of copper in LME warehouses rose 4,325 tonnes to 207,700 tonnes, more than double the levels seen last January.

China's copper imports rose 59.4 percent year-on-year in December to 95,831 tonnes, suggesting consumers there were restocking after running down inventories through most of 2006.

"In the last week or so there's definitely been some price stability," said Adam Rowley, analyst at Macquarie Bank.

"There are some signs of increased consumer buying and obviously the Chinese import figures helped. Over the next couple of months if Chinese buying continues to pick up the market could be fairly balanced for a period."

Economic slowdown in the United States, falling demand and rising stocks have hit copper in recent months. Prices are down more than 30 percent since May's record high of $8,800.

RAPID SELL-OFF

The sell-off pushed copper down to a nine-month low of $5,430 on January 8 from $6,300 at the start of 2007.

"It was a very rapid sell-off. A bounce was inevitable," another trader said. "That doesn't mean we're seeing a resumption of the bull market in copper ... That's reserved for nickel."

Nickel was untraded but bid at $37,800 from $38,145 on Thursday. Nickel has hit new record highs for eight consecutive days now on expectations of strong demand from stainless steel makers, worries about low stocks and supply disruptions.

Available stocks of nickel at around 2,700 tonnes are less than one day's global consumption. They have fallen from around 37,000 at the beginning of last year and supply disruptions mean that the critical stock situation is unlikely to change soon.

The latest rally started after workers at London-listed Xstrata nickel operations in Sudbury in Ontario gave union leaders a strike mandate.

A union representative said on Thursday that wage talks were not progressing ahead of a January 31 deadline.

"Stocks have been under pressure for some time and are likely to continue to do so given tight supply/demand fundamentals," UBS said in a research note.

"Expiry of a labour contract at the end of the month at Xstrata's Sudbury complex in Canada, which accounts for 5 percent of global nickel supply, has caused further nervousness in the market."

Tin traded at $12,075 from Thursday's last bid at $12,275. Traders said fund buying on the back of worries about supplies from Indonesia has pushed the metal to new highs in recent weeks.

A police investigation into small smelters in Indonesia's tin-rich Bangka island has spooked refiners into cutting output.

Indonesian police are also investigating tin miner PT Koba Tin in connection with sourcing illegal tin ore and operating outside its mining area.

Aluminium futures for delivery in three months traded at $2,778, up from $2,792 on Thursday but below Wednesday's four-week high of $2,846.

Aluminium has been buoyed recently by a strike in Guinea that has disrupted shipments of bauxite.