Copper Falls in London as U.S. Housing Slowdown Leaves Surplus

By Claudia Carpenter

Jan. 21 (Bloomberg) -- Copper dropped for a second day in London on speculation the U.S. housing slowdown will exacerbate an oversupply of the metal used in wires and pipes.

Demand for copper dropped 10 percent in the U.S., the world’s second-largest buyer, in January through October compared with a year earlier, the International Copper Study Group said yesterday. Supplies of refined metal will exceed consumption by 478,000 metric tons this year, triple last year’s surplus, according to Morgan Stanley.

“We’re absolutely sure the current situation on the demand side will continue to worsen,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. “We haven’t seen dramatic cuts in production. That’s why we have ample inventories.”

Copper for delivery in three months on the London Metal Exchange dropped $96, or 2.9 percent, to $3,245 a ton as of 12:52 p.m. local time. Prices fell 2.6 percent yesterday.

Nickel declined $400 to $11,150 a ton as inventories climbed to 79,932 tons, the most since July 1995. BHP Billiton Ltd., the world’s largest mining company, will suspend operations at its Ravensthorpe nickel mine in Australia.

U.S. President Barack Obama’s $850 billion government spending program to revive the economy is necessary to keep copper from extending declines, Weinberg said. Without government stimulus programs, prices would fall to $2,500 a ton in the second half, he said.

“We’re talking about hundreds of billions being invested in new infrastructure, electricity infrastructure and roads, and it has a lot to do with copper,” Weinberg said. “It’s one of the reasons copper is not as weak as it should have been given very bleak demand.”

Copper Consumption

China, the world’s largest copper user, used almost 13 percent more metal in the first 10 months last year, the Lisbon- based copper study group said. Demand dropped 2.8 percent in 15 European Union countries and 1.9 percent in Japan, it added.

The number of 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 tomorrow.

Inventories of copper in warehouses monitored by the LME gained 8,375 tons, or 2.1 percent, to 417,475 tons, the exchange said today. The supplies have increased 23 percent this year to the highest since January 2004.

Morgan Stanley analyst Hussein Allidina lowered his 2009 average copper-price forecast by 31 percent to $1.35 a pound ($2,976 a ton). Prices will average $1.70 a pound next year.

Aluminum fell $35 to $1,365 a ton. LME aluminum stockpiles jumped 88,975 tons to 2.6 million tons, the most since June 1994.

Lead declined $40 to $1,125 a ton and zinc fell $65 to $1,185 a ton. Zinc inventories climbed 4.3 percent to the highest since March 2006. Tin decreased $45 to $11,255 a ton.

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