Copper Accelerates Decline in London After Jump in Inventories

By Claudia Carpenter

Feb. 20 (Bloomberg) -- Copper accelerated declines on the London Metal Exchange as stockpiles of the metal jumped to a five-year high, reviving speculation that demand is falling more quickly than supply. Aluminum slid to a six-year low.

Copper inventories in LME-monitored warehouses rose 3.3 percent, the most since Jan. 29, to 545,600 metric tons. Locations in New Orleans -- a destination for metal from Chile, the world’s largest producer -- received 14,350 tons, or 83 percent of today’s total increase.

“That could be an entire vessel,” said Kevin Tuohy, a trader at MF Global Ltd. in London. “It’s more than you expect on a daily basis.”

Copper for delivery in three months fell $130, or 4 percent, to $3,160 a ton at 2:05 p.m. local time on the LME. The contract was down 1.9 percent before the inventory report and has slid 7.9 percent this week. Support lies between $2,950 and $3,000 a ton if prices drop below $3,150 a ton, Tuohy said.

Aluminum for three-month delivery lost $50, or 3.7 percent, to $1,300 a ton. The contract fell as far as $1,296.50 a ton, the lowest since Oct. 10, 2002. Asian production of the metal rose 6.9 percent in January from December even as overall output fell 1.7 percent, the International Aluminium Institute said today.

‘Oversupply’ of Aluminum

The market for aluminum, used in industries from packaging to aerospace, has “significant oversupply,” said Michael Widmer, an analyst at BNP Paribas SA in London. Producers in India, Qatar and Oman are maintaining projects while companies in other regions cut output, he said.

Copper, which is employed in plumbing and electrical wiring and viewed by some analysts as an indicator for economic growth, has added 2.9 percent in 2009 after falling 54 percent last year. Demand in the U.S. will drop 5.6 percent this year, according to London-based researcher Bloomsbury Minerals Economics Ltd.

The contract for immediate delivery traded $35.25 a ton below three-month copper yesterday, the smallest discount since Feb. 6 based on closing prices. In a market with limited supply, the immediate-delivery contract would have a premium to three- month copper, something that last happened Nov. 4.

LS-Nikko Copper Inc., operator of the world’s third-largest copper refinery and smelter, shut one of its two smelting plants for maintenance, earlier than planned. The plant, with about 300,000 tons of annual capacity, will be shut for a month, said a company official.

Inventories of lead jumped 1.4 percent to 56,425 tons, the first increase in a week. The metal, used mainly in automotive batteries, fell $20.50 to $1,050 a ton.

Three-month tin lost $310 to $10,590 a ton, and nickel declined $240 to $9,660 a ton. Zinc fell $37 to $1,095 a ton.

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