Copper, Aluminum Pace Decline in Metals as U.S. Housing Shrinks

By Claudia Carpenter and Chanyaporn Chanjaroen

Jan. 20 (Bloomberg) -- Copper, aluminum and nickel led declines in industrial metals in London on speculation that demand will weaken as the U.S. housing slump worsens.

U.S. housing starts and permits to begin building probably dropped to record lows last month, economists said in Bloomberg News surveys before the Commerce Department report in two days. Construction is the biggest use for copper in the U.S., and prices slid 54 percent last year as the American recession reduced home buying.

“The big influence now is the outlook for economic growth,” said Peter Fertig, a consultant for Dresdner Kleinwort in Hainburg, Germany. “The continued fall of housing starts in December might remain a burden for copper in the short run.”

Copper for delivery in three months on the London Metal Exchange dropped $170, or 5 percent, to $3,260 a metric ton as of 10:54 a.m. local time. That’s the biggest intraday decline since Jan. 12. Aluminum fell $35, or 2.5 percent, to $1,388 a ton. The contract earlier reached $1,370, the lowest since July 2003.

With energy accounting for 40 percent of aluminum production costs, and oil futures down 25 percent this year, “some analysts fear that aluminum supply would not decline sufficiently,” Fertig said, forecasting prices may drop to $1,350 in the next two weeks.

Commodities measured by the Standard & Poor’s GSCI index declined 4.2 percent today as an economic downturn deepened in China, the U.S. and Europe. China’s urban unemployment rate jumped for the first time since 2003 and may climb to an almost 30-year high.

Industrial metals are likely to decline further, said Fraser Phillips, a Toronto-based analyst at RBC Capital Markets.

‘Negative Impact’

“An extended global recession would have a significant negative impact on the base metals commodity complex,” he said in a report, recommending that investors stay “underweight” in copper, aluminum and mining stocks.

LME Chief Executive Officer Martin Abbott told reporters today that the bourse expects the volume of lots traded to decline by about 10 percent this year.

The exchange this month said 113 million futures and options on metals and plastics were traded last year. The exchange, founded in 1877, handled $10.24 trillion of contracts compared with $9.5 trillion in 2007.

Inventories of copper in warehouses monitored by the exchange jumped 3.9 percent to 409,100 tons, the highest since January 2004. Aluminum stockpiles gained 0.6 percent to almost 2.6 million tons, the most since July 1994.

Lead declined 3.2 percent to $1,147 a ton, nickel retreated 3.5 percent to $10,900 a ton and zinc fell 4.3 percent to $1,215 a ton. Tin decreased 3.1 percent to $10,800 a ton.

Lead inventories jumped 9.2 percent to 49,700 tons, the biggest increase in a year.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net