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METALS-Copper edges higher as dollar weakens, U.S. data eyed

Eric Onstad and Harpreet Bhal
Wednesday, 6 Nov 2013 | 10:33 AM ET

* LME copper cash-Nov backwardation could rise further

* LME data suggests 145,000-220,000 T of copper off warrant

* U.S. jobs data eyed later this week

(Updates prices, adds comment in penultimate paragraph)

LONDON, Nov 6 (Reuters) - Copper ticked higher on Wednesday for a second session as the dollar weakened and investors kept up hopes of extended U.S. monetary stimulus.

Cash copper moved to a premium to forward contracts, putting pressure on a large short-position holder, traders said.

Three-month copper on the London Metal Exchange traded at $7,182 a tonne at 1523 GMT, up from a close of $7,161 on Tuesday. The metal used in power and construction has shed 9.4 percent so far this year.

Copper has held to a range of $7,000 to $7,420 a tonne since early August, supported by steady demand from top consumer China and cheap liquidity in the United States after the Federal Reserve delayed tapering its bond-buying programme.

Copper's range has been narrowing, prompting many who following signals generated by charts to forecast that prices are due to break away.

"My guess is that when we break out, if we break out, it will be to the downside," said Stephen Briggs, metals strategist at BNP Paribas in London.

The 30 percent decline in LME copper stocks since June does not necessarily represent strong demand but more likely that material is moving off-warrant, sometimes within the same warehouses, he added.

"Material is likely being shifted across a white line. You can't necessarily conclude that since LME stocks have been declining for four months that means the market's in deficit, as much as the bulls would like to."

Briggs expects a wave of stronger supply to pressure copper down to an average price of $6,675 a tonne next year.

In the short term, traders said copper prices could find nearby support if a large short position in November is forced to cover. Cash copper climbed to a $5 premium against the November contract from a $12 discount in mid-October. <MCU0-X3>

Reuters' calculations based on LME data show that November's short position could be to hedge as much as 145,000 to 220,000 tonnes of metal that is not in the LME warehousing system. <0#LME-FBR>

This figure tallies with a drop in LME copper stocks and may suggest that metal leaving warehouses is going into storage rather than for consumption. LME stocks have dropped by around one-third from mid-June to around 470,000 tonnes, data shows. <MCUSTX-TOTAL>

WEAK DOLLAR

The euro hit session highs against the dollar, with traders citing a report that a rate cut by the European Central Bank was unlikely despite a drop in inflation.

A weaker dollar makes commodities priced in the U.S. currency cheaper for buyers outside the United States.

LME volumes were low, with traders reluctant to take positions ahead of a labour report from the United States and a major policy meeting in China.

A sustained recovery in the economy is a precondition for the Fed to begin hauling back its commodity-friendly stimulus. On Tuesday, data showed that growth in U.S. service sector activity had picked up in October.

"The strong U.S. ISM data (on Tuesday) led to market speculation that the Fed may taper its asset-purchasing program sooner than expected," ANZ analysts said in a note.

The United States will release its October labour market report at the end of the week.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Three month LME tin

(Additional reporting by Melanie Burton in Singapore; Editing by Dale Hudson and Jane Baird)