Global demand concerns drag copper 9 pct down

The bleak economic picture was highlighted by the FTSE 100 .FTSE falling about 1 percent, with European shares on track for their worst month ever.

Adding to negative sentiment, U.S. consumers cut their monthly spending for the first time in two years during September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.

Copper for three month delivery on the London Metal Exchange fell to $3,990 a tonne in official trading rings, from $4,210 at the close on Thursday and compared with a session low at $3,832.

“It’s been pretty volatile again today,” said one LME trader. “We are heading lower. I’m a bear and have been for a while - copper is overvalued...”

Prices of the metal used in power and construction have fallen more than 50 percent since a record high of $8,940 in July.

Analysts said fears over global demand in the face of a worldwide economic downturn are to blame for the slump in prices.

“(Base metals are) not looking too clever,” said Dan Smith, a metals analyst at Standard Chartered. “We are going to see prices remaining under pressure for the time being ... it’s a sell-off across all the base metals in response to worries about the demand outlook.”

“This tone is going to be with us for a while because people are waiting to get some clarity on the underlying picture. Certainly demand is getting softer,” Smith said.

In industry news, Chile’s Codelco, the world’s largest copper producer, said its copper output fell 8.2 percent in the first nine months of the year, citing a strike by subcontract workers and falling ore grades.

ALUMINIUM STOCKS RISE

Aluminium hit $1,997 a tonne, but tracked back to $2,005 from $2,065. Adding to the gloom, LME aluminium stocks jumped 1,150 tonnes to 1.5 million tonnes -- a reminder of the metal’s weakened state of demand -- while copper stocks rose 6,775 tonnes to 230,650 tonnes.

“We are not out of the woods in terms of metals prices and economic recovery,” said Fairfax analysts in a note. “Chinese demand remains a marked unknown and could make the difference between small and larger LME stock levels.”

Nickel was at $11,500 a tonne from $11,900 at the close on Thursday, lead was down 3.2 percent at $1,471 from $1,520 and zinc at $1,130 from $1,160.

Tin fell 6.8 percent to $13,610 a tonne from $14,600.

Producers in the last few months have started to cut back production across metals as falling prices put profit margins under pressure.

But Macquarie Bank analysts said in a note: “Although output cuts and project delays have been significant in recent months, the shorter term bearish demand outlook means that base metals need to remain at or below current price levels for a sustained period until we see sufficient production cuts as to tighten up the metals markets by say, the end of 2010.”