METALS-Copper recovers from 2-year low but demand outlook still weak

Peter Hobson

(Updates throughout, changes dateline from SINGAPORE) LONDON, Sept 4 (Reuters) - Copper prices rose on Wednesday from a two-year low in the previous session, helped by a weaker dollar, rising global stock markets and arbitrage trading after London prices dropped below levels in China.

Benchmark copper on the London Metal Exchange (LME)

was up 1.5% at $5,691.50 a tonne at 0956 GMT after hitting $5,518 on Tuesday, the lowest since May 2017. Tuesday's plunge followed an unexpected contraction of U.S. factory activity -- the latest in a run of poor readings across the world as a U.S.-China trade dispute weakens economic growth.

Copper, used in power and construction, has slumped more than 20% from highs in June last year. Its recovery on Wednesday was "due in part to the somewhat weaker dollar and benign equity markets, which give support to base metals," Commerzbank analyst Daniel Briesemann said. He said bleak economic data had caused him to revise his forecast for prices at the end of the year to $6,000 from $6,500.

ARB TRADING: LME prices were supported by investors finding it profitable to buy the London copper contract and simultaneously sell the Shanghai copper contract, traders and analysts said. COPPER STOCKS: On-warrant copper inventories available to the market in LME-registered warehouses have dropped to 209,650 tonnes from more than 300,000 tonnes in mid-August. <MCUSTX-TOTAL> CHINA PREMIUMS: Yangshan copper import premiums at $77 are their highest since November 2018, pointing to higher demand in the world's largest consumer of metals. MARKETS/DOLLAR: Global equities rose and the dollar weakened from two-year highs, helping dollar-priced metals by making them cheaper for buyers with other currencies.

TRADE WAR: U.S. President Donald Trump on Tuesday warned he would be "tougher" on Beijing in a second term if trade talks dragged on. NICKEL: The premium for cash nickel over three-month metal on the LME has fallen to $38 from a 10-year high of more than $100 last week, suggesting a supply crunch is easing. <MNI0-3>

The benchmark LME contract was down 0.1% at $17,960

a tonne, holding near a 5-year high of $18,850 reached on Monday after top supplier Indonesia accelerated a ban on nickel ore exports. NICKEL DEFICIT: Indonesia's ban, to enter force on Jan. 1, will push the roughly 2.3-million tonne a year nickel market into a 180,000 tonne deficit in 2020, analysts at ANZ said. "However, this market is remarkably resilient. High inventories and alternative sources should see this supply-squeeze subside, limiting the upside in prices from here," they said.

OTHER METALS: LME aluminium was up 0.4% at $1,759.50a tonne, zinc was 2.5% higher at $2,259, lead

gained 1.5% to $2,018.50 and tin rose 1.5% to $16,960.

(Reporting by Peter Hobson; additional reporting by Mai Nguyen. Editing by Jane Merriman)