Aluminum Falls to Three-Year Low as China May Ship More Metal

By Claudia Carpenter

Nov. 17 (Bloomberg) -- Aluminum fell to a three-year low and copper declined in London on speculation more metal will be shipped out of China, adding to global supplies as demand falters. Zinc also fell.

China will lower the tariff on some aluminum to 5 percent from 15 percent as of Dec. 1, the Ministry of Finance said Nov. 14. Shipping costs, measured by the Baltic Dry Index, have plunged more than 90 percent since the end of May.

``This allows China to compete on price with producers globally and of course what will happen in this environment, prices will fall,'' said Daniel Brebner, an analyst at UBS AG in London. ``The key issue is that freight rates have declined. It allows for greater competition by manufacturers and producers in various parts of the world.''

Aluminum for delivery in three months fell $38, or 2 percent, to $1,890 a metric ton as of 10:33 a.m. on the London Metal Exchange and earlier dropped to $1,888, the lowest since Oct. 21, 2005. Copper slid $124, or 3.3 percent, to $3,696 a ton.

China will restore tax rebates on some copper and other industrial metal exports by early next year, the China Nonferrous Metals Industry Association said last week.

Copper has dropped 45 percent and aluminum has fallen 22 percent this year as some economies, including Germany and Japan, entered a recession and the dollar climbed, raising costs for buyers using other currencies.

The economy in Japan, the world's fourth-largest copper consumer after China, the U.S. and Germany, contracted 0.4 percent in the third quarter and 3.7 percent in the second quarter, its first recession since 2001.

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Copper ``has further to fall than the other base metals,'' Brebner wrote in a report e-mailed today. ``Cutbacks in aluminum are occurring and the price has fallen a long way whereas copper can fall further and we have yet to hear of any meaningful cutbacks in copper supply.''

Aluminum cutbacks in 2009 equal 7.1 percent of 2007 output compared with 0.5 percent for copper mining, according to the report.

Codelco, the world's largest copper miner, may have to lower its premium for metal sold next year in Europe below $80 a ton ``given the lack of demand,'' Brebner wrote. The company reduced the surcharge to $80 from $115 a ton in October.

It cut the fee last week for sales to South Korea and Japan by more than 30 percent to $64 and $65 a ton respectively, according to industry executives.

Aluminum will bottom next year at an average $1,700 a ton, 35 percent lower than this year, while copper's average will drop 59 percent to $2,900 from $6,900 this year, according to the report.

Among other metals for delivery in three months, lead dropped $25 to $1,320 a ton, zinc fell $25 to $1,175 a ton and tin declined $200 to $13,700 a ton. Nickel fell $254 to $10,746 a ton.

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