LONDON, Aug 23 (Reuters) - Copper held firm on Monday but was seen undermined by a stronger dollar and doubts about the strength of demand in top consumers China and the United States.
Traders are watching the premium or backwardation on the London Metal Exchange for material to be delivered on Tuesday and bought back on Wednesday -- known as the tom/next and often used to lend metal to entities who are short of aluminium.
Benchmark copper on the London Metal Exchange was trading at $7,262 a tonne at 1018 GMT. The closing bid on Friday of the metal used in power and construction was $7,252 a tonne.
Recent data from the United States has raised questions about the health of the world's largest economy and whether growth can be sustained.
"You are looking at an economic environment in the U.S. which is likely to remain a concern and growth rates in China could be under pressure...," said Dan Brebner, analyst at Deutsche Bank.
"In the short term, the macro environment is turning against industrial metals. Macro forces will play a pivotal role."
Chinese consumer price inflation data in the middle of September could be a trigger for policy tightening.
But before then the market will see surveys of purchasing managers in manufacturing. Recent releases have shown activity in many countries still expanding, but at a slower pace.
The dollar was boosted against the euro, which was hurt by concerns over the euro zone economy which have seen short positions in the single currency extended. A higher dollar makes commodities cheaper for holders of other currencies.
"The Fed has said there will be more quantitative easing, that will impact on the dollar -- weaken it," a trader said. "That should be a support for copper."
WRONG-FOOTED
One support seen on Monday was news that China's imports of refined copper rose 6 percent in July from a month earlier, the first increase in four months thanks to arrivals of contracted spot cargoes.
Traders expect this to be a new trend and cite increased levels of cancelled warrants -- material earmarked for delivery -- on copper stocks in LME warehouses.
Copper stocks stand at 402,200 tonnes, down more than 20 percent since the middle of February. Inventories of aluminium, used in transport and packaging, at 4.46 million tonnes compare with a record above 4.64 million tonnes in January.
Large inflows of aluminium into LME warehouses on Monday and Tuesday last week -- more than 91,000 tonnes -- were partly due to the tom/next premium -- at around $4 a tonne.
The backwardation developed because of two significant positions holding between 30 and 40 percent of aluminium stock warrants and cash contracts.
"There are some parties caught short of material and so they are having to scramble to get the material," a trader said, adding that he thought the situation was temporary.
"It's just a case of being caught wrong-footed, traders trying to make money in an extremely difficult environment."
Worries about availability have also narrowed the contango between the aluminium cash and three-month contract.
Three-month aluminium was at $2,058 a tonne from $2,040 on Friday, lead at $2,065 a tonne from $2,056, tin at $20,730 from $20,650 and nickel at $21,498 from $21,550.
Zinc was at $2,057 from Friday's last bid at $2,058.
Metal Prices at 1015 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T Metal Last Change Percent Move End 2009 Ytd Percent
move COMEX Cu 328.60 -0.50 -0.15 334.65 -1.81 LME Alum 2053.00 13.00 +0.64 2230.00 -7.94 LME Cu 7258.00 -51.00 -0.70 7375.00 -1.59 LME Lead 2057.00 1.00 +0.05 2432.00 -15.42 LME Nickel 21430.00 -120.00 -0.56 18525.00 15.68 LME Tin 20550.00 -100.00 -0.48 16950.00 21.24 LME Zinc 2050.00 -40.00 -1.91 2560.00 -19.92 SHFE Alu 15330.00 20.00 +0.13 17160.00 -10.66 SHFE Cu* 57190.00 140.00 +0.25 59900.00 -4.52 SHFE Zin 16920.00 -30.00 -0.18 21195.00 -20.17 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07
