copper futures snap 2 days of gains on london meta

Copper Futures Snap 2 Days of Gains on London Metal Exchange
May 24 (Bloomberg) -- Copper snapped two days of gains on the London Metal Exchange on speculation that a recent rally exaggerated a production shortfall. Aluminum also declined.

The price of copper has more than doubled in the past year as some analysts forecast demand will exceed production this year as in 2005. The metal's supply and demand indicators are ``very, very strong,'' said Adam Rowley, a London-based Macquarie Bank Ltd. analyst. Still, he said price gains may be ``overdone.''

``There's a degree of uncertainty of whether prices are too high,'' Rowley said.

Copper for delivery in three months on the LME dropped $590, or 7 percent, to $7,870 a metric ton as of 12:09 a.m. local time. It had a record 12 percent gain yesterday, as the metal rebounded from last week when commodities had their biggest weekly decline in 25 years.

The rally in copper has led some consumers of the metal to use cheaper materials, such as plastic. This substitution is making record base metal prices ``unsustainable,'' David Humphreys, chief economist at Russia's OAO GMK Norilsk Nickel, said last week.

``At these levels it's still very difficult to justify these metals prices,'' said William Adams, a Saffron Walden, England-based analyst at Basemetals.com.

Winton Capital Management Ltd., a London-based fund manager that invests in commodities, has reduced its bet that base metal prices will rise because the rally appears to be near its peak, said managing director David Harding.

`High Volatility'

``The bull market has reached the stage where you are seeing very, very high volatility,'' Harding said. ``That is characteristic of a more advanced stage in a bull market.''

Copper inventory monitored by the LME fell 925 tons, or 0.9 percent, to 106,225 metric tons, the exchange said today in a daily report. Stockpiles have risen 19 percent this year. Still, the current level is equal to less than three days of global consumption.

Next week, Mexico's miners union will attempt to block non- union workers from mines and steel plants to pressure the government to accept Napoleon Gomez as the union's leader, union spokeswoman Consuelo Aguilar said yesterday.

Global output of copper this year has already been curbed by a more than two-month strike at Grupo Mexico SA's mines, and a decline in production at Freeport-McMoRan Copper & Gold Inc.'s Grasberg mine, the world's second-largest copper mine.

Aluminum dropped $110, or 3.8 percent, to $2,760 a ton on the LME. Zinc fell $150 to $3,400 and nickel slipped $295 to $21,900 and lead fell $39 to $1,130. Tin dropped $200 to $8,350.