Copper Falls to 3-Year Low in London on Outlook for Recession

By Chanyaporn Chanjaroen

Oct. 27 (Bloomberg) -- Copper and aluminum fell to a three- year low in London, leading a decline in most industrial metals, on concern that a recession will sap demand for products such as housing and cars.

Copper extended last week's 22 percent drop, the biggest decline since at least 1986. The U.S. economy probably shrank at a 0.5 percent annual rate in the last quarter, the second retreat in a year, the median estimate in a Bloomberg survey indicated.

``As long as the economic picture isn't clear, investors are going to sell into any rally,'' said Lars Steffensen, managing director of Ebullio Capital Management LLP, which runs a $20 million commodity hedge fund. Only ``a meteorite hitting earth'' could make things worse, he said today from Southend-on-Sea, England.

Copper for delivery in three months fell $120, or 3.2 percent, to $3,650 a metric ton as of 1:34 p.m. on the London Metal Exchange. The contract earlier lost as much as 4.8 percent to $3,590, the lowest intraday price since Sept. 19, 2005.

The metal has fallen 45 percent this year as demand growth shrinks in China, the world's biggest user. Declines today pushed mining stocks lower, including BHP Billiton Ltd., which owns the world's largest copper mine, Escondida in Chile.

Consumption growth in China may slow to 5 percent this year, said Duan Shuaofu, copper division chief at the China Nonferrous Metal Industry Association, half the previous forecast.

Merrill Lynch & Co. today cut its 2009 forecast for copper by 41 percent, aluminum 19 percent and nickel by 36 percent.

Copper will average $2.25 a pound next year, analysts including Vicky Binns said in a note dated Oct. 25.

`Trading Illiquidity'

``We expect China's data to look worse before it gets better,'' Binns said in the report. ``Some small end consumers can't secure bank guarantees for letters of credit, and coupled with trading illiquidity, this has resulted in even softer underlying demand.''

Copper stockpiles monitored by the LME rose 0.7 percent to 213,375 tons, the highest since Feb. 16. The implied volatility of the contract for immediate delivery soared to 84 percent on Oct. 24, the highest since at least 2004.

Aluminum dropped $27.75, or 1.4 percent, to $1,943.25 a ton, the lowest since Oct. 26, 2005. Aluminum Corp. of China Ltd., the nation's largest producer, dropped to the lowest in more than five years in Hong Kong trading after the company reported third- quarter profit slumped 93 percent.

Tin, the only industrial metal that gained today, rose $450, or 3.8 percent, to $12,200 a ton as inventories declined 11 percent to 4,080 tons, the lowest since Aug. 4, 2005.

Tin Smelters

Nine tin smelters in Indonesia, the world's largest exporter of the metal, agreed to halt production to help stem this year's 26 percent price plunge, PT Bangka Belitung Timah Sejahtera, a producer group set up in 2007, said last week. The group produces about 3,000 tons a month.

Zinc production beat consumption by 108,000 tons in the first eight months, doubling from a year ago, the Lisbon-based International Lead and Zinc Study Group said today in a monthly report. Lead's oversupply was 34,000 tons, a switch from a shortfall of 40,000 tons.

Lead lost as much as $101, or 8 percent, to $1,170 a ton and zinc was $75 lower at $1,090 a ton. Nickel fell $150, or 1.7 percent, to $9,830.

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