Copper Drops to 2 1/2 Year Low as Metals Slump on Credit Crunch

By Li Xiaowei

Oct. 10 (Bloomberg) -- Copper tumbled in London, heading for the biggest weekly plunge in more than two decades, as equities dropped on concern rate cuts by central banks aren't enough to boost world economies. Nickel, zinc and aluminum fell.

Asian stocks plummeted, and U.S. futures fell on concern the deepening credit crisis will push the global economy into recession. The MSCI Asia Pacific Index lost 7.3 percent to 85.56 by 12:22 p.m. in Shanghai, and was set for the biggest drop since the index was created on Dec. 31, 1987.

``The liquidity problem is posing a serious threat to the real economy,'' Zhao Kai, an analyst at Jinrui Futures Co., a unit of Jiangxi Copper Co., said by phone from Shenzhen today. ``Industrial metals including copper are likely to be hurt even more once the repercussions are fully felt by the manufacturing sector around the world.''

Copper for three-month delivery fell as much as 9.1 percent to $4,830 a metric ton on the London Metal Exchange, the lowest intra-day level since March 2006. The contract, traded at $4,880 a ton at 12:23 p.m. in Shanghai, heading for a 19 percent decline for the week, the biggest drop since April 1986 when Bloomberg started tracking the metal prices.

``Not only does U.S. consumption look as though it will be weak for longer, but European consumption has fallen quickly and sharply and we don't think the worst is over yet,'' Barclays Capital analysts led by Gayle Berry wrote in a report today.

``Spreading to China''

``Most importantly, there is early evidence that the ripples of the slowdown in developed economies are spreading to China and this has scuppered market hopes for a post-Olympic pick-up in consumption,'' they wrote. China is the world's largest consumer of industrial metals including copper.

With the opening of the Shanghai and London copper arbitrage proving short-lived, ``only a small pick-up in China's copper imports'' is expected over the rest of 2008, they said.

Copper fell by the daily limit in Shanghai after resuming trading following a one-day suspension. The metal for December delivery dropped by 1,870 yuan, or 4 percent, from the previous settlement price, to 43,890 yuan ($6,414) a ton at midday.

``The horrible falls this month have hurt hedging demand from users,'' said Jinrui's Zhao. ``Sadly, we foresee Shanghai copper to have a couple of more limit downs to match up with declines in London.''

Among other LME-traded metals, aluminum fell 4.3 percent to $2,205 a ton, zinc dropped 6.2 percent to $1,405, lead slumped 6 percent to $1,565, nickel plunged 8.6 percent to $12,250 and tin was 7.1 percent lower at $13,700.

Metal Companies

Shares of metal companies also fell. Aluminum Corp. of China Ltd., the country's largest producer of the lightweight metal, plunged as much as 15.6 percent to HK$3.08 in Hong Kong and traded at HK$3.21 at 12:29 p.m. local time.

Yunnan Chihong Zinc & Germanium Co. China's fifth-biggest producer of zinc, dropped by the exchange-imposed limit of 10 percent to 9.23 yuan in Shanghai and traded at 9.26 yuan at midday. The company said today first-nine month profit fell 70 percent after metal prices plunged.

To contact the reporter for this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net