LONDON -- Copper prices softened on Tuesday but were supported by a strike over pay at Chile's Altonorte copper smelter, traders said.
With the market awaiting key economic data from the United States, copper for delivery in three months traded at $6,650 a tonne in the official rings on the London Metal Exchange from $6,675 on Monday.
Last Friday it hit a six-month low of $6,618.
Traders said light selling ahead of the year-end and a stronger dollar since last week weighed on copper.
"Buyers are backing off and leaving the field to the sellers," one LME trader said, noting buying interest at Tuesday's low of $6,630.
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"Altonorte is there, it won't fall far with that in the background."
Workers at Altonorte started the strike on Monday, when they also rejected a revised offer from London-listed Xstrata . Xstrata's stock was trading down around 1.5 percent.
Altonorte has the capacity to process 820,000 tonnes of concentrate a year. Last year it produced nearly 300,000 tonnes of pure copper. [ID:nN18459658]
Analysts said the damage to supplies from the Altonorte strike might be limited as other smelters could turn the concentrate into copper, but they saw the outcome of the dispute as important for wage negotiations elsewhere.
Contract talks at Xstrata, Grupo Mexico's Asarco and Chile's state-owned Codelco, the world's largest copper miner, could affect some 12 percent of global copper supply.
World refined copper output exceeded consumption by 81,000 tonnes between January and September this year, against a deficit of 319,000 tonnes in 2005, the International Copper Study Group (ICSG) said.
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November U.S. producer prices and housing market data were due at 1330 GMT. Weak housing numbers could reinforce fears of falling demand for base metals.
But if the U.S. currency slips, then that would make dollar-denominated metals cheaper for holders of other currencies. The dollar has steadied after a surge last week on stronger economic figures.
Economic slowdown in the United States has weighed on base metal prices in recent months and that has been reinforced by expectations of higher supplies next year.
"We expect to see a weakening of the market. In the absence of a weakening dollar, hedge fund selling is the key thing to look at," Numis Securities analyst John Meyer said.
Much of the caution is due to rising copper inventories at LME warehouses, which at around 172,625 tonnes are about 575 percent above levels in July last year.
However, falling zinc stocks - at around 87,000 tonnes and the lowest since early 1991 - could push zinc prices higher.
Zinc was untraded, but was bid at an unchanged $4,345. Last month it hit a record high of $4,580 a tonne.
"Inventory withdrawals may have slowed, but even so LME inventory levels are on course to fall to nothing early next year," Barclays Capital said in a research note.
However, that could be partly balanced out by commodity index funds, which early next year are likely to rebalance portfolios back to their original weightings.
The surge in prices this year means the metal component of these indices will be too high and will need to be trimmed.
"The rebalancing of the portfolio of the Dow Jones AIG, is likely to have some impact on metals prices, especially for nickel and zinc," Calyon said in a research note.
Nickel last week hit a record high of $34,950. It was bid down at $33,550 from Monday's last quote at $34,025/34,050.
Aluminium was steady at $2,785, tin traded at $11,175 from $11,110/11,125 and lead shed $35 to $1,640.
Traders said lead prices were under pressure from rising stocks, up 975 tonnes at 41,425 tonnes.
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