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METALS-Copper falls slightly, checked by weak dollar

Eric Onstad and Harpreet Bhal
Wednesday, 6 Nov 2013 | 12:47 PM 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 with closing prices)

LONDON, Nov 6 (Reuters) - Copper edged lower on Wednesday due in part to concerns about surplus supply in the long term, though the drop was limited by a weak dollar and strengthening expectations for 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, ended at $7,115, down from a close of $7,161 on Tuesday. It earlier hit a session low of $7,093, its lowest since Oct. 10.

Stephen Briggs, metals strategist at BNP Paribas in London,

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

Copper has traded in a $7,000-$7,420 range since early August partly due to uncertainty about real demand growth from top consumer China.

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," Briggs said.

A 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."

In the short term, traders said copper prices could find nearby support if the holder of 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 rose against the dollar after strong German industry data strengthened expectations that European Central Bank would not cut rates, 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 U.S. economy is a precondition for the Federal Reserve to begin hauling back its commodity-friendly stimulus programme. 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.

In other metals, nickel ended at $14,110, from a close of $14,345, having earlier hit its lowest since Oct. 18 at $14,062, while zinc closed at $1,913, from a last bid of $1,922 after earlier hitting its lowest since Oct. 16 at $1,910.

Aluminium ended at $1,822 from a last bid of $1,817 on Tuesday, while lead ended at $2,160 from $2,156, and tin closed at $22,825 from $22,995.

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

(Editing by Dale Hudson and Jane Baird)