Copper Leads Slide on London Metal Exchange on Shipping Slump

By Claudia Carpenter

Oct. 15 (Bloomberg) -- Copper, aluminum, nickel and other industrial metals fell in London as a slump in shipping costs heightened speculation that demand will weaken.

The Baltic Dry Index, a measure of seaborne freight costs, fell 11 percent today, for a 50 percent drop this month. Pacific Basin Shipping Ltd., Hong Kong's biggest dry-bulk carrier, said demand for moving coal and other raw materials will fall because banks are guaranteeing fewer loads.

``Commodities are stacking up in ports,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd. `If demand were significantly restricted due to finance issues, it would hammer base metals.''

Copper for delivery in three months dropped $315, or 6 percent, to $4,985 a metric ton on the London Metal Exchange as of 1:36 p.m. local time. The contract gained 11 percent the past two days.

Stocks in Europe and Asia also fell for the first time in three days after Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. is in a recession.

Aluminum fell $107, or 4.7 percent, to $2,175 a ton, the biggest drop since July 8. Stockpiles of the metal in warehouses monitored by the LME jumped 55,875 tons, or 4 percent, to 1.46 million tons, the most since February 1995.

Aluminum Corp. of China Ltd., China's biggest producer, cut alumina capacity at its Shandong plant by 1 million tons and shut aluminum smelters in Shandong and Henan provinces, said a company executive, who asked not be identified. Global output will exceed demand by 276,000 tons this year and 375,000 tons next year, Standard Bank Plc forecast yesterday.

``We need more output cuts,'' Jorge Vazquez, an analyst at Laredo, Texas-based research company Harbor Intelligence, said in an interview in London today.

Lead Declines

Lead fell $124, or 7.6 percent, to $1,516 a ton. The market will have a supply surplus of 49,000 tons this year after five years of deficits, Standard Bank said. Prices will average $1,890 a ton in 2009 and $1,740 a ton in 2010.

Lead is mostly used in car batteries and ``current forecasts suggest there will be no recovery in the U.S. auto industry until 2010,'' Standard Bank said.

``I don't see an increase in demand for lead this year or next,'' Jim Grubbs, vice president of sales and marketing at St. Louis-based Doe Run Resources Inc., said yesterday from London. ``We do not see a crushing fall in demand in our markets in the U.S. either.''

Tin declined $955, or 6.4 percent, to $14,040 a ton, nickel dropped $820, or 6.4 percent, to $11,980 a ton and zinc fell $80, or 5.7 percent, to $1,330 a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net