By Claudia Carpenter
Jan. 19 (Bloomberg) -- Aluminum dropped to a five-year low in London as cheaper oil prices reduced production costs, spurring speculation that supply will expand. Copper and other metals erased gains.
Energy accounts for about 40 percent of aluminum’s production costs, and New York oil futures dropped 3.4 percent today. Inventories of the metal used in beverage cans and cars exceeded 2.5 million metric tons today for the first time since July 1994, according to the London Metal Exchange.
“Energy costs are low,” said James Roberts, a London-based broker at Sucden Financial Ltd., one of 12 traders on the floor of the London Metal Exchange. “It wouldn’t surprise me to see inventories go to 3 million plus.”
Aluminum for delivery in three months fell $46, or 3.1 percent, to $1,419 a metric ton as of 12:39 p.m. on the LME and earlier dropped to $1,415, the lowest since Sept. 30, 2003.
The decline accelerated after prices fell below $1,435, the low in mid-December, triggering selling by traders who follow charts and graphs, said Dhiren Sarin, an analyst at Barclays Capital in London.
Production gained 4.4 percent last year to 39.7 million tons, exceeding consumption and leaving a supply surplus of 2.6 million tons, Macquarie Group’s London-based analyst Jim Lennon wrote in a report today. “We are grappling with the issue that our supply/demand forecasts continue to throw out surpluses in 2010 even with a strong recovery in demand.”
Aluminum makers in China, the world’s biggest producer, are returning to profit after aluminum futures in China rose and raw material costs declined, analysts said last week.
Copper fell $15 to $3,340 a ton, erasing an earlier gain to a one-week high of $3,475 a ton. The contract fell 1.3 percent last week. Lead dropped $29 to $1,140 a ton, nickel declined $55 to $10,800 a ton and zinc decreased $17 to $1,234. Tin fell $150 to $10,750 a ton.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
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