* Weak dollar, firmer equities, commods outlook underpin
* China buyers say Codelco ups term premium to $85
By Nick Trevethan
SINGAPORE, Nov 16 (Reuters) - Copper rose more than 2.5 percent in London and Shanghai on Monday, bolstered by a weaker dollar, bad weather in northern China and a big rise in annual copper premiums for the world's biggest buyer, China.
Chile's Codelco, the world's top copper producer, has raised term premiums for refined copper to China by $10 per tonne to $85 per tonne for delivery in 2010, three buyer sources said.
Chinese buyers had expected Codelco to raise 2010 premiums by $5-$10 a tonne after a fall this year, while western analysts had been looking for numbers closer to the $74-$75 settled with Japanese and South Korean buyers last week.
"There is a supply story looming. But $85 is a very strong number. It's certainly positive for the market. Premiums tend to be a reasonable indicator for demand, and though supply signals -- the stockpiles -- aren't telling us that, it should be enough to keep prices moving higher," ANZ's senior commodities analyst Mark Pervan said. Three-month copper on the London Metal Exchange rose 2.6 percent or $168 to $6,688 at 0716 GMT and earlier touched $6,702, its strongest since Oct. 26.
Benchmark third-month Shanghai copper rose 2.7 percent to close at 52,390 yuan, but the most active fourth month, February, rallied even further -- up 3.1 percent at a 13-month high of 52,750 yuan.
"There is heavy snow in the north of the country. The market is rallying on a rumour that it is adversely affecting communications and smelter operations and is triggering some of the buying," a Shanghai trader said.
Unseasonably early and heavy snow in northern China has caused at least 38 deaths, brought down more than 7,000 buildings nationwide and cost around 3.5 billion yuan ($512.8 million) in losses, the official Xinhua news agency said.
The Shanghai trader said the talk had narrowed the discount for Shanghai copper versus LME to 1,000 yuan from above 1,500 last week.
"The ratios are improving but not enough to open the arbitrage window, I don't think this will continue for long though as stocks in the domestic market are high and there is little risk of a supply squeeze," he said.
The dollar fell half a percent, heading into a week that is likely to see increased rhetoric on currencies from both China and visiting U.S. President Barack Obama.
FUND FLOWS
Commodities fund manager BlackRock Investment's Evy Hambro, who manages two of the world's largest commodities funds, said commodities markets generally were normalising, but restocking was not yet occurring in the United States and Europe.
"Fund flows are still a huge driver, Our calculations suggest investors are underweight commodities," said Alex Tonks, commodities analyst at Citigroup. He added that investor positions were around $100 billion shy of where they were in the first half of 2008.
He added: "Our preference from a fundamental perspective remains copper, given the supply side issues. Short term, at least, our least favourite is nickel."
Nickel rallied 2.5 percent, paring a little of last week's loss of 7.2 percent, but worries about inventories, which stand at a 15-year peak of 131,740 tonnes, about 10 percent of global output, are weighing on sentiment. Stocks have risen 67 percent this year.
"Bargain hunting," ANZ's Pervan said.
"You can't get too excited by nickel. There might be some re-stocking coming from European and U.S. stainless mills. LME stocks aren't suggesting that yet, but if it happens, it should show up in stocks data pretty quickly." Base metals prices at 0716 GMT Metal Last Change Pct Move End 2008 Pct chg 09 LME Cu 6688.00 168.00 +2.58 3060.00 118.56 SHFE Cu* 52390.00 1370.00 +2.69 23840.00 119.76 LME Alum 1975.00 35.00 +1.80 1535.00 28.66 SHFE Alum* 15255.00 110.00 +0.73 11540.00 32.19 COMEX Cu** 296.85 0.00 +0.00 139.50 112.80 LME Zinc 2226.00 52.00 +2.39 1208.00 84.27 SHFE Zinc 17285.00 145.00 +0.85 10120.00 70.80 LME Nickel 16600.00 400.00 +2.47 11700.00 41.88 LME Lead 2316.25 41.25 +1.81 999.00 131.86 LME Tin 14850.00 100.00 +0.68 10700.00 38.79 LME/Shanghai arb^ 1023 Dollar/yuan 6.8260 \ 6.8270 ** 1st contract month for COMEX copper * 3rd contact month for SHFE aluminium, copper and zinc ^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month (Editing by Clarence Fernandez)
