Copper May Drop Next Week as Demand Slows in China (Update2) By...

Copper May Drop Next Week as Demand Slows in China (Update2)

By Chanyaporn Chanjaroen and Millie Munshi

Nov. 24 (Bloomberg) -- Copper may drop next week on speculation that demand will keep slowing in China and the U.S., the world's two largest consumers of the metal.

Thirteen of 23 analysts, investors and traders surveyed by Bloomberg yesterday and Nov. 22 forecast copper will decline next week. Nine expected a gain and one little change.

Consumption in China fell 6.9 percent in the nine months to September, the World Bureau of Metal Statistics said Nov. 22. Usage in the U.S. is ``depressed,'' the Lisbon-based International Copper Study Group said last week.

``The demand just isn't there,'' said Warren Gelman, president of Kataman Metals Inc., a trading company in St. Louis. ``With the lack of any major business going on between now and the end of the year, this market has to come off.''

Housing starts in the U.S., the second-biggest copper user after China, fell to a six-year low in October as falling home sales and swollen inventory discouraged construction. The building industry is the nation's largest consumer of copper, with the average house containing about 400 pounds of copper.

Copper has declined 19 percent since trading at a record $8,800 a metric ton in London on May 11. Chinese copper imports were 1.7 million tons in the first 10 months of the year, 22 percent less than a year earlier. Imports have been falling since October 2005.

Housing Slowdown

Chinese reliance on copper imports will drop as domestic production rises 12 percent this year, China Minmetals Corp., the nation's largest metals trader, said earlier this month. Declining demand in China and the U.S. tipped the global market into a surplus of 228,000 tons in the nine months to September, the Hertfordshire, England-base WBMS said.

Copper for delivery in three months on the London Metal Exchange gained $165, or 2.4 percent, to $7,145 a ton as of 5:07 p.m. local time. It headed for a first weekly gain in five, advancing 5.1 percent.

On the Comex division of the New York Mercantile Exchange, copper for March delivery rose 2.9 percent to $3.228 a pound. Copper for delivery in January on the Shanghai Futures Exchange added 2.8 percent to close at 65,690 yuan ($8,365) a ton. Chinese prices include 17 percent tax and 2 percent duty.

The U.S. house market is slowing after the Federal Reserve raised borrowing costs for two years through June, lifting the target rate for overnight loans between banks to 5.25 percent.

Tight Supply

``It's very difficult for copper to rise in an environment where interest rates are higher and there are slower economic factors,'' said Ron Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey.

Global demand for copper still rose 2 percent in the first nine months of 2006, according to the WBMS. The metal's rally may not be over because of tight supply, Richard Adkerson, Chief Executive Officer of New Orleans-based copper miner Freeport- McMoRan Copper & Gold Inc., said Nov. 20.

Analysts at Citigroup Inc., the biggest U.S. bank, said the same day that the ``super cycle'' in metals is still intact, with the so-called fundamentals of supply and demand keeping prices for copper above historical averages.

Investors surveyed by Bloomberg who expected prices to rise cited gains in the amount of LME copper stockpiles bought and due for future deliveries, known as canceled warrants. Canceled warrants have risen 69 percent to 19,675 tons in the past week