Copper Extends Decline From One-Week High as Stockpiles Climb

By Li Xiaowei

Nov. 26 (Bloomberg) -- Copper dropped for a second day in London, extending a decline from a one-week high, as increasing stockpiles added to evidence that a global economic slowdown is reducing demand for industrial metals.

Inventories monitored by the London Metal Exchange rose to 287,225 metric tons yesterday, the highest since February 2004. Stockpiles have advanced 45 percent this year while the copper price is down by the same percentage, heading for the first annual drop since 2001.

“Investors seem to be bent on pushing copper prices beneath the marginal cost of production, expecting that demand will further deteriorate in the coming months,” Chen Yonglin, an analyst at Citic Futures Co., said from Shanghai. The marginal cost of production is estimated at around $3,500 a ton, he said.

Copper for three-month delivery fell as much as 1.8 percent to $3,630 a ton on the London Metal Exchange and traded at $3,660 at 3:00 p.m. in Shanghai. It jumped to as high as $3,815 on Nov. 24 on the U.S. government rescue of Citigroup Inc.

The metal also fell as the U.S. dollar gained the first time in four days against the euro, making the currency-denominated contracts more expensive to buyers. The dollar stabilized after the Federal Reserve pledged $800 billion to help ease the credit crisis for homeowners, consumers and small businesses.

The dollar was at $1.2977 per euro at 3:06 p.m. in Shanghai after touching $1.3080 yesterday, the lowest since Nov. 5.

February-delivery copper on the Shanghai Futures Exchange closed up 0.3 percent at 27,830 yuan ($4,076) a ton.

Open Interest

Open interest on the Shanghai exchange surged to more than 260,000 contracts today, from 80,000 last month as an “increasing divergence of opinion” on the direction of prices increased fund inflows, Chen said.

Copper for immediate delivery traded 1,600-1,800 yuan more expensive than the front-month futures in Changjiang, Shanghai’s biggest cash market, implying tight supplies.

Among other LME-traded metals, aluminum was 0.3 percent up at $1,815 a ton, zinc fell 1.2 percent to $1,235, lead rose 0.8 percent to $1,200 and nickel slid 0.2 percent to $10,477. Tin had not traded as of 3:12 p.m. in Shanghai.

To contact the reporter for this story: Li Xiaowei in Shanghai at xli12@bloomberg.net