METALS-Copper helped by lower dollar, demand doubts linger

* Investors fearing excess liquidity, seek hard assets * Dubai should make investors think By Pratima Desai LONDON, Nov 30 (Reuters) - Copper rose on Monday, boosted by a weaker dollar and investors seeking safety in tangible assets, but fragile demand, rising inventories and fears of a Dubai debt default are expected to keep the mood sombre. Three-month copper on the London Metal Exchange was trading at $6,880 a tonne at 1105 GMT from $6,855 at the close on Friday when the metal used in power and construction fell to a two-week low of $6,620 a tonne. The dollar retreated from sharp gains made last week, after the United Arab Emirates offered emergency assistance to banks in Dubai, soothing fears about a debt default. "Base metals are reacting to the weaker dollar. Liquidity floating around the system makes it difficult for investors not to diversify into hard assets," said Eugen Weinberg, commodities analyst at Commerzbank. The massive amounts of money pumped into the economy by governments around the world and low interest rates have raised the spectre of spiralling inflation in years to come. Investors seeking to protect their assets have piled into commodities, which also become cheaper when the dollar falls. "That has been the case for some months now," a London-based trader said. "Dubai didn't force a large correction and if base hold up today then we're unlikely to see a bigger correction." Copper prices have more than doubled this year and last week they spiked above $7,000 a tonne, the highest since Sept. 2008. CRANES However, analysts say demand for industrial metals is weak and buying is mainly for inventories not for actual consumption. Weak sentiment could also be reinforced by Dubai, if the crisis escalates. Dubai and other countries in the Middle East are large consumers of base metals, used in construction. "Dubai should make investors think again ... It could be that demand for commodities from Dubai and the Middle East will not be as strong as it has," Weinberg said. Weinberg cited one statistic. "A quarter of the cranes in operation worldwide were used in Dubai." Also weighing on industrial metals are high inventories. Stocks of copper in LME warehouses at above 438,000 tonnes are up 70 percent since the middle of July and the highest since April, while stocks of aluminium at near 4.6 million tonnes are near the record high of 4.269 million tonnes seen in September. But about 70 percent of aluminium stocks are said to be tied up until next May in financing deals, which means they are not available to the market and that is one reason why aluminium prices are up more than 30 percent since January. But rising prices have triggered a restart of smelting capacity, especially in China, the world's largest producer. That will check price gains, but analysts expect support from higher energy prices, which comprise 30 percent, often more, of aluminium smelting costs. "Increased production costs due to power price hikes in China last week will sustain the upward momentum in the metals complex towards the year end," Deutsche Bank ( DB - news - people ) said in a note. Aluminium was trading at $2,034 a tonne from $2,016 on Friday, tin was at $14,900 from $14,895 and nickel at $16,200 from $16,085 a tonne on Friday when it touched $15,751, the lowest since July 22. Stocks of nickel at above 137,000 tonnes are the highest since February 1995 and are also undermining prices of the metal used to make stainless steel. Battery material lead was at $2,320 from Friday's last bid at $2,290 and zinc, used to galvanise steel was at $2,250 from $2,230. Metal Prices at 1107 GMT Metal Last Change Percent Move End 2008 Ytd Percent move COMEX Cu 310.70 1.35 +0.44 139.50 122.72 LME Alum 2030.00 14.00 +0.69 1535.00 32.25 LME Cu 6862.00 7.00 +0.10 3060.00 124.25 LME Lead 2310.00 -30.00 -1.28 999.00 131.23 LME Nickel 16075.00 -10.00 -0.06 11700.00 37.39 LME Tin 14800.00 -95.00 -0.64 10700.00 38.32 LME Zinc 2239.00 9.00 +0.40 1208.00 85.35 SHFE Alu 15570.00 125.00 +0.81 11540.00 34.92 SHFE Cu* 54420.00 920.00 +1.72 23840.00 128.27 SHFE Zin 18050.00 345.00 +1.95 10120.00 78.36 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Editing by Sue Thomas) source: Reuters