Nickel, Zinc Drag Metals Lower in London on Signs Use Weakening

By Chanyaporn Chanjaroen

Aug. 5 (Bloomberg) -- Nickel and zinc led a slide in metals traded in London as rising stockpiles indicated weakening world demand amid a global economic slowdown.

Nickel fell to a two-year low as inventories tracked by the London Metal Exchange nearly trebled in the past year, while zinc traded at the lowest since December 2005 after stockpiles surged to a 23-month high.

``As LME inventories increased, investors' assessment of the market has changed,'' Tobias Merath, a commodity analyst at Credit Suisse Group in Singapore, said today by phone. ``They see it as a sign of weakening demand.''

Nickel for delivery in three months fell as much as $425, or 2.4 percent, to $17,600 a metric ton, the lowest since June 14, 2006. It traded at $17,725 a ton as of 11:24 a.m. in London. Zinc lost as much as $37, or 2.1 percent, to $1,730 a ton, the lowest since Dec. 1, 2005.

Manufacturing shrank last month in China and Europe, and stagnated in the U.S., the biggest sources of demand for industrial metals. Chinese home-appliance makers, the world's largest exporters of the products, are cutting purchase of copper as shipments of air conditioners and fridges slow, said Jiangxi Copper Co., the nation's second-largest copper producer.

Copper stockpiles expanded 2,550 tons, or 1.7 percent, to 148,750 tons, according to the LME's daily report, the highest since Feb. 26. The metal dropped as much as $75, or 1 percent, to $7,530, the lowest since Feb. 7, and last traded at $7,600.

Metal Consumption

Metal consumption may grow less than 10 percent this year in China, slower than 2007, Zhao Mingwang, general manager of Jiangxi Copper's rod and wire sales, said today by phone. Manufacturers of appliances and electronics account for 20 percent of copper demand in China.

Between 50 percent and 79 percent of LME copper stockpiles were held by one firm as of July 30, according to LME figures. Buyers of next-day delivery are paying $14 per ton a day as borrowing fees.

``We would be cautious about getting short copper here,'' said John Reade, a metals strategist at UBS AG in London. Price differentials between LME and the Shanghai Futures Exchange are narrowing, ``indicating the Chinese hate copper less than the rest of the world,'' Reade wrote today in an e-mailed note.

Lead rose $5 to $2,000. Lead stockpiles earmarked for withdrawal from LME-registered warehouses, known as canceled warrants, jumped 20 percent to 10,250 tons, according to the exchange. That accounts for 11 percent of total lead inventories. All the canceled warrants are in Long Beach, California, where a lead recycler owned by Quemetco Inc. shut down after a July 3 fire.

Among other metals traded on the LME, aluminum fell $1 to $2,881 a ton and tin declined $450, or 2.2 percent, to $20,150.

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