Copper retreated on Monday after two sessions of gains as oil prices dropped again, though a weaker dollar and firmer equity markets in top metals consumer China helped to limit losses. Three-month copper on the London Metal Exchange lost 0.6 percent to close at $4,417 a tonne.
"The base metals are following oil down," said analyst Daniel Briesemann at Commerzbank in Frankfurt. Oil prices fell 4 percent as Iraq announced record-high oil production feeding into a heavily oversupplied market.
"In the short term I fear prices are still skewed to the downside because sentiment is still quite bad. Especially if oil prices retreat again, base metals should also come under pressure," Briesemann said.
LME copper rallied to a two-week high of $4,484 a tonne on Friday as oil prices jumped about 10 percent and Chinese physical premiums gained ground.
Copper premiums in China rose to $95-$100 last week - the highest since late October - as Chinese stockpiling picked up ahead of next month's Lunar New Year.
However, Chinese demand has yet to show signs of recovery in a big way, said Helen Lau, an analyst at Argonaut Securities in Hong Kong.
"Overall fundamentals have yet to recover in significant ways. There are still divergent views about China," she said. "Some still want to short China while others are saying China is fine."
Demand from top copper consumer China is expected to fall over the Lunar New Year, adding to pressure on prices.
US hedge funds and money managers added to bearish bets in COMEX copper futures and options, US Commodity Futures Trading Commission (CFTC) data showed on Friday.
Also dampening sentiment was a survey that showed German business morale fell to an 11-month low in January.
Zinc bucked the trend, however, after Vedanta Resources said the final shipment from its closed Lisheen mine in Ireland had departed last week.
LME zinc finished with a 0.3 percent gain at $1,515 a tonne.
Many investors have viewed the closure of major zinc mines, such as Lisheen and Century in Australia, as having the potential to create price-strengthening shortages of the metal used primarily in iron and steel galvanisation.
The downside in LME metals was cushioned after shares in China, which accounts for nearly half of world copper demand, began the week on a firmer note, extending gains from Friday.
Also supporting the market was a weaker dollar index, making commodities priced in the US currency cheaper for buyers outside of the United States.
Aluminium closed 0.4 percent weaker at $1,476 a tonne and tin dropped 0.3 percent to end at $13,650. Lead, untraded in closing rings, was bid down 1.1 percent at $1,622 while nickel was bid 2.2 percent weaker at $8,550.
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