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Bloomberg - Zinc Falls to 14-Month Low on Supply Speculation; Copper Drops

By Chanyaporn Chanjaroen

Sept. 4 (Bloomberg) -- Zinc fell to a 14-month low, leading a decline in other industrial metals, on speculation that excess supply will widen next year. Copper, lead, nickel, aluminum and tin also dropped.

Miners including Apex Silver Mines Ltd. are expanding zinc output after prices climbed to a record last year. Supply will beat demand by 40,000 metric tons in the second half, expanding to 165,000 tons next year, according to London-based GFMS Metals Consulting Ltd.

``Everything that we look at suggested the market is in surplus and it's growing,'' Neil Buxton, managing director of London-based GFMS, said today by phone. He has tracked metals for more than two decades.

Zinc for delivery in three months fell $92, or 3 percent, to $2,948 a ton as of 12:53 p.m. on the London Metal Exchange. The contract earlier fell to $2,921 a ton, the lowest intraday price since June 29, 2006.

Zinc, used to galvanize steel, has lost 30 percent this year. Production expanded 9.8 percent in the first half to 5.69 million tons, outpacing demand by 31,000 tons, according to the Lisbon-based International Lead and Zinc Study Group.

That may hurt earnings for producers including London-based Nyrstar, the zinc-smelting joint venture of Umicore SA and Zinifex Ltd.

Lead dropped $80, or 2.7 percent, to $2,940 a ton. Earlier it fell to $2,920 a ton, the lowest since Aug. 22.

Prices are still about 10 to 15 percent above what is justified by supply and demand, Eugen Weinberg, a commodity analyst at Commerzbank AG in Frankfurt, said today by phone. Prices have soared 76 percent this year, the most among all metals traded on the London Metal Exchange.

Speculators Dominate

``Lead is in a bubble,'' Weinberg said. ``From April to June, I'd say speculators have driven prices.''

The metal, mostly used in car batteries, climbed to a record $3,500 a ton July 23 after production disruptions reduced supply. LME-tracked stockpiles rose 100 tons to 25,300 tons, the exchange said today. They remain close to the lowest since March 1990.

Nickel stockpiles expanded 480 tons, or 2 percent, to 24,804 tons, the highest since May 9, 2006. The benchmark contract declined $1,050, or 3.4 percent, to $28,800. The metal is mostly used in stainless steel, which China is the world's largest producer.

The U.S. Institute for Supply Management's factory index fell to 53 in August, from 53.8 in the preceding month, according to the median of 69 forecasts in a Bloomberg News survey. Readings greater than 50 signal expansion. The Tempe, Arizona- based group's report is due at 10 a.m. New York time.

The outlook for copper is ``firm,'' Kazakhmys Plc, Kazakhstan's largest copper producer, said today after reporting a 25 percent increase in first-half profit.

Copper dropped $130 or 1.8 percent, at $7,260 a ton and aluminum fell $8 to $2,470. Tin lost $445 to $14,850.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at [email protected]

Last Updated: September 4, 2007 08:01 EDT