Zinc Leads Drop in Metals as Lehman Curbs Commodities Demand

By Rachel Graham

Sept. 15 (Bloomberg) -- Zinc fell the most in almost 10 months, leading industrial metals lower in London, as the collapse of Lehman Brothers Holdings Inc. curbed demand for commodities.

Lehman, once the fourth-largest U.S. investment bank, posted the biggest bankruptcy filing in history today, raising concern a worsening credit crisis will slow the economy. The S&P GSCI Index of 24 commodities fell 5 percent, extending its slide from July's record to 31 percent. Crude oil traded at a seven-month low.

``It's largely a stampede out of commodities,'' Dan Smith, a metals analyst at Standard Chartered Plc in London, said by phone. ``People are avoiding anything that's risky because of Lehman.''

Zinc for three-month delivery fell as much as $176 a ton, or 9.3 percent, to $1,710 a metric ton on the London Metal Exchange, the steepest intraday decline since Nov. 19, 2007. It traded at $1,730 a ton as of 12:50 p.m. local time. Nickel slid 6 percent, extending this year's slide to 31 percent, the steepest drop of the exchange's six industrial metals.

Lehman was suspended from energy and commodities trading in London after Europe's biggest clearing house declared the company a defaulter.

The LME, the world's largest copper bourse, the Liffe commodities exchange, and Intercontinental Exchange Inc.'s ICE Futures Europe, part of the second-biggest energy exchange, all suspended Lehman today. LCH.Clearnet Group Ltd., which clears trades, declared Lehman's European subsidiary a defaulter.

Phone Trading

Lehman is a so-called category 2 member of the LME and eligible to issue and clear contracts. It can't trade on the exchange floor and was suspended from trading on the bourse's Select electronic platform. The LME trades copper, aluminum, zinc, nickel, tin, lead, steel and plastics.

The firm can still trade by phone, LME spokesman Thom Lant said. Each trade has to be approved by PricewaterhouseCoopers LLP, which is handling the winding down of the business, he said.

The surplus in the zinc market widened in the first seven months of the year, according to the International Lead and Zinc Study Group.

World output was 6.85 million metric tons during January to July, while usage was 6.78 million tons, the Lisbon-based group said today on its Web site. The 77,000-ton surplus compares with 16,000 tons a year earlier.

Among other metals traded on the London Metals Exchange, copper fell $307, or 4.3 percent, to $6,815 a ton, aluminum fell $95, or 3.6 percent, to $2,570 a ton and tin fell $1,050, or 5.5 percent, to $18,200 a ton.

To contact the reporter on this story: Rachel Graham in London at rgraham13@bloomberg.net