Copper, Aluminum Drop in London as Stronger Dollar Curbs Appeal

By Chanyaporn Chanjaroen

July 23 (Bloomberg) -- Copper and aluminum fell in London as a strengthening dollar dulled the metals' appeal as an alternative investment. Zinc rose the most in more than a week.

The London Metal Exchange index tracking six industrial metals has a correlation of 0.534 with the euro/dollar so far this month, compared with 0.462 in June. A reading of 1 indicates they move in lockstep. Oil and gold also declined as the U.S. currency gained to a four-week high against the yen and a two- week high against the euro.

``If you are investing in copper, you should not keep your eye only on supply and demand, and the labor unrest in South America, but also on the strength of the dollar,'' Donald Selkin, chief market strategist at National Securities Corp. in New York, said yesterday in a Bloomberg Television interview.

Copper for delivery in three months fell $30, or 0.4 percent, to $8,100 a metric ton as of 1:31 p.m. London time. Aluminum dropped $21, or 0.7 percent, to $3,014 a ton.

A stronger U.S. currency discourages holders of other monies to buy dollar-denominated commodities, which become more expensive to them.

Output from Chile's Escondida, the world's biggest copper mine, may fall between 10 and 15 percent in the fiscal year to June 30, 2009, because of lower-quality ores, said BHP Billiton Ltd.

BHP owns 57.5 percent of the mine and its share of output in fiscal 2008 was 679,500 tons, the company said today. Production rose to 178,200 tons for the three months ended June 30, from 170,500 tons a year earlier, it said. Rio Tinto Group owns 30 percent of the mine.

Zinc Rallies

Zinc rose as much as $70, or 3.8 percent, to $1,915 a ton, the biggest intraday gain since July 11.

China, the world's largest producer and consumer of the metal, remained a net importer of the metal for a fifth consecutive month, according to customs data published yesterday.

Still, ``demand is weak, suggesting a build in unreported stocks,'' Barclays Capital said in an e-mailed report.

Among other LME-traded metals, nickel fell $50 to $20,450 a ton, lead slipped $15 to $2,125, after earlier rising as much as 2.6 percent to $2,195 a ton, the highest intraday price since May 20. Tin fell 0.2 percent to $23,350.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net