Bloomberg: Aluminum Falls Most in 17 Years, Copper Slides on China Concern

Aluminum Falls Most in 17 Years, Copper Slides on China Concern

Jan. 4 (Bloomberg) -- Aluminum prices in London plunged the most in more than 17 years and copper fell on speculation that investors are reducing holdings as Chinese demand for metals slows, halting a yearlong rally.

``There's got to be some sort of shift out of commodities this year,'' Maqsood Ahmed, an analyst at Calyon Financial in London, said in a telephone interview. ``Maybe it's happening sooner than we think.''

Global demand growth for aluminum will slow to 5.3 percent in 2005 from 8.1 percent last year, Barclays Capital said Dec. 16. In China, the world's top copper user, consumption gains will drop to 10 percent from 15 percent in 2004, Barclays said. Metals used in appliances, autos and homes surged last year as demand exceeded mine output and speculative investors bought commodities in a bid for higher returns.

Aluminum for delivery in three months on the London Metal Exchange closed open outcry trading down $168, or 8.5 percent, to $1,800 a metric ton. It was the biggest decline since October 1987. The lightweight metal used in food packaging and construction gained 22 percent in 2004, the most in five years.

Copper fell $254, or 8.1 percent, to $2,895 a ton, its biggest one-day drop since Oct. 13. The metal, used in wiring and plumbing, advanced 37 percent on the exchange in 2004, the biggest riser among seven metals. It traded at a 16-year high of $3,179.5 on Oct. 11.

``There has been selling from funds'' that piled into the metals markets last year, Roy Carson, a trader at Triland Metals in London, said in a telephone interview.

Narrowing Deficit

The prices of oil, gold and base metals have fallen at the start of this year due partly to selling by hedge funds and other speculators who bought amid surging global demand for raw materials in 2004. Commodities priced in dollars also were purchased to protect against the decline of the dollar against other currencies, including the euro and yen.

Other metals on the LME also closed lower. Lead dropped 9.2 percent to $922 a ton, its biggest fall in 15 years. Nickel had its biggest slide in a month, down $1,025 to $14,000. Zinc was down $83, the most in 7-1/2 years, to $1,165. Tin fell $220 to $7,560.

Copper demand in 2005 will rise 4.6 percent to 17.5 million tons, exceeding production by 277,000 tons, Barclays Capital said in its report last month. The deficit in 2004 was 684,000 tons, the bank said. Producers such as Phoenix-based Phelps Dodge Corp. raised output in 2005, narrowing the shortfall.

China, the world's No. 2 user of aluminum, is trying to slow demand growth to avoid inflation. The nation's government limited loans and raised interest rates in 2004.

``We think we have seen the top of the commodity cycle,'' Nick Moore, an analyst at ABN Amro in London, said in a telephone interview. ``We are in the endgame.''

Metal Company Shares

Shares of Pittsburgh-based Alcoa Inc., the world's largest aluminum producer, fell 43 cents, or 1.4 percent, to $30.56 at 12:10 p.m. in New York Stock Exchange composite trading. Montreal-based Alcan Inc. fell 65 cents to C$58.15 ($47.46) on the Toronto Stock Exchange.

Phelps Dodge, the world's No. 2 copper producer, fell $3.65, or 3.7 percent, to $92.24 in New York and has dropped 9.2 percent since they closed on Dec. 29 at $101.55.

``Phelps Dodge has been a leader of the copper market,'' Michael Purdy, vice president at ABN Amro in New York, said in a television interview.

Other metal producers also fell. Shares in Melbourne-based BHP Billiton, the world's largest mining company, closed in London down 4.2 percent to 25.5 pence, the biggest one-day fall since Oct. 13. London-based Anglo American, the world's No. 2 miner, dropped 1.6 percent to 1,212 pence a share. Rio Tinto, the world's No. 3 miner, dropped 3.3 percent to 1,482 pence.

Dollar's Drop

The dollar rose 1.4 percent to $1.3298 versus the euro in London, after trading at a record low of $1.3666 on Dec. 31. The dollar's 7.3 percent drop against the European currency last year made dollar-denominated commodities cheaper for holders of euros.

``Commodities for much of December were matching the dollar blow-for-blow,'' ABN's Moore said. ``There's no reason why that shouldn't continue.''

LME-monitored copper inventory was unchanged at 48,875 tons, the exchange said in a daily report. The total shrank 89 percent in 2004 as consumers withdrew metal from storage.

Speculators increased their net-long position in New York copper futures in the week ended Dec. 28, according to U.S. Commodity Futures Trading Commission data.

``There was very good fund buying last week,'' Robert Barham, a trader at IFX Markets in London, said in a telephone interview.

Speculative long positions, or bets prices will rise, outnumbered short positions by 26,523 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions rose by 3,306 contracts, or 14 percent, from a week earlier.

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Prudent Investor Says: Endgame? I think not. I have noted presciently in my New Year's outlook that the US Dollar was poised for a massive rebound. Naturally, commodities such as industrial metals whom have risen due to the US dollar's fall, moved inversely to the currency's tracks. Given that the US dollar fell quite sharply late late year, this move was 'on the screen'. The US dollar's plight is hardly a done deal.

Moreover, it seems that US dollar's rebound has coincidentally been baneful to the US markets. Could this simply be the one of the symptoms from the US FEDERAL RESERVE's recent monetary tightening?