Copper Heads for Biggest Two-Day Decline in More Than 12 Years

By Glenys Sim

Oct. 16 (Bloomberg) -- Copper futures on the London Metal Exchange are headed for the biggest two-day decline in more than 12 years on concern a global recession may slash commodity demand as the credit crisis intensifies.

Futures fell alongside other commodities after U.S. stocks tumbled the most since the 1987 crash on economic growth concerns and as U.S. retail sales in September dropped by the most in three years.

``What started as a financial crisis has evolved into an economic crisis, which is now turning into a full-fledged global recession,'' said Cai Luoyi, chief analyst at China International Futures (Shanghai) Co. ``There's no reason commodities will be spared from this onslaught of pessimism.''

The metal for delivery in three months dropped as much as 5.2 percent to $4,663 a metric ton, and traded at $4,701 at 10:45 a.m. in Singapore, extending yesterday's 7.2 percent fall. The contract has fallen 12 percent over the past two days, the most since June 1996.

Copper for January delivery on the Shanghai Futures Exchange dropped by the daily limit for a second day, falling 4 percent from the previous settlement price to 39,590 yuan ($5,797) a ton. This is the first time since December 2005 that the contract has fallen below 40,000 yuan.

``It's a domino effect because when credit tightens, producers cut output, processors shut, and end users buy less,'' Wang Fei, an analyst at Maike Dickson Investment Management Co., said from Shanghai.

Copper demand is considered an indicator of global economic growth because of its uses ranging from water pipes in homes to auto wiring and electricity cables.

Lead Slumps

Lead, mostly used in car batteries, fell as much as 5.9 percent to $1,425 a ton on concern the slumping global economy will erode auto demand. The metal has slumped 43 percent this year as production is expanding faster than usage, according to the International Lead and Zinc Study Group.

Lead consumption growth will slow to 4 percent next year from 5.7 percent this year, the Lisbon-based group said in its latest forecasts Oct. 13.

U.S. retail sales posted the biggest drop in three years, and signals that ``U.S. consumers are now in a recession,'' Standard Chartered Plc said in a report.

European car sales dropped for the fifth consecutive month in September, the longest slide since 2005, and China's vehicle sales fell for a second straight month in September. Auto sales in the U.S. may plunge to their lowest rate in at least 25 years, Deutsche Bank AG said Oct. 14.

Among other LME-traded metals, aluminum was down 1.3 percent at $2,142 a ton, zinc lost 1.5 percent to $1,295, and tin slipped 3.2 percent to $13,600. Nickel had not traded as of 10:43 a.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net