Dec. 18 (Bloomberg) -- At the Pacorini Group warehouses in New Orleans, the 15,000 metric tons of copper that have accumulated since September are enough to wire about 7 million refrigerators and make every short-seller salivate.

``You're seeing 1,000 tons here, 1,000 tons there,'' said Mario Casciano, 40, U.S. chief executive officer of Trieste, Italy-based Pacorini. For two years, ``we used to have nothing coming in.''

That helps explain why the booming market for industrial metals may be a cropper in 2007. While everything from aluminum to zinc has risen at least 25 percent this year and as much as 157 percent, no one is forecasting a continuation of the five- year bull market.

The retreat may be abetted by rising production, a slowing economy and speculators, including hedge funds, who eight months ago began borrowing money to sell copper on the so far- successful assumption they could buy it back at lower prices, according to U.S. government data. Builders began construction of U.S. houses at the slowest pace in six years in October just as global production of copper is poised to increase 4.7 percent in 2007, more than double this year, the International Copper Study Group in Lisbon says.

Even Jim Rogers, chairman of New York-based Beeland Interests Inc., who insists the bull market in commodities will last at least another decade, now says copper prices are ``correcting'' as a U.S. recession ``slows demand for everything.''

Metals Outlook

Copper may drop 15 percent next year to $2.61 a pound on average from $3.06 this year, and probably will reach $2.10 in 2008, based on the median forecast of 11 analysts surveyed by Bloomberg. Nickel may lose 10 percent next year, while aluminum is likely to slide 13 percent, the survey shows.

ABN Amro Holding NV metals analyst Nick Moore in London expects a global surplus of 100,000 tons of copper next year, compared with a deficit of 50,000 tons in 2006. The bank forecasts aluminum production will outstrip demand by 150,000 tons in 2007, along with surpluses for lead and zinc.

The price of copper, a leading indicator of the global economy because of its use in everything from water pipes to industrial motors, may be the most vulnerable to a slump. ABN forecasts prices, which reached a record $4.04 a pound in May, will average $2.75 in 2007 and $2.25 in 2008. Copper's last drop of a similar magnitude was in 2001, after the bubble in technology stocks burst.

``Copper is going to come a cropper,'' Moore said.

Riding Production

Global copper stockpiles will continue to rise because of a 5.3 percent increase in production next year, creating a surplus of 404,000 tons, Merrill Lynch & Co. said in a Dec. 8 report. The bank forecasts prices will fall to an average $2.40 a pound in 2007 and $1.65 in 2008.

``Whilst we are big believers in the longer term super cycle for commodities, every year in this upward trend is unlikely to be a positive year,'' Merrill analysts led by Vicky Binns in Sydney said in the report. ``We now believe that the first half of 2007 will be one of the downward correction periods.''

Global copper inventories monitored by exchanges in Shanghai, London and New York are the largest since 2004 after almost tripling in the past 18 months.

Prices are ``artificially high,'' said David Threlkeld, a trader in Scottsdale, Arizona, who in 1996 was the first to say copper was inflated because of hoarding by Yasuo Hamanaka, at the time a Sumitomo Corp. trader. ``There's too much speculative activity, not enough true consumer demand, and with production exceeding consumption, I see prices substantially lower.''

Deficits Disappear

For the first time since 2001, production of copper next year will surpass orders for wiring and plumbing. BHP Billiton Ltd., the world's biggest mining company, and Codelco of Chile will help ship more than enough of the metal to meet demand.

``Demand is expected to be softer in 2007 while supply is likely to be stronger,'' said Peter Hickson, a London-based strategist at UBS AG, Europe's biggest bank by assets.

Trading patterns indicate metals are poised to fall. Since copper futures in New York reached a record in May, the number of bets on price direction, measured by open interest, has plunged 22 percent and touched a two-year low in September. Prices tumbled 24 percent during the period.

The drop in open interest is similar to trading that preceded an oil slump this year. Through July 14, when oil peaked, open interest surged 29 percent and prices rose 26 percent. Since then, open interest has grown less than 1 percent and prices have fallen 20 percent.

Commodity Decline

All metals have ``the possibility of unexpected, significant declines,'' said Mo Ahmadzadeh, president of metals trading at Mitsui Bussan Commodities Ltd. in New York, a unit of Mitsui & Co., Japan's second-largest trading company.

The Reuters-Jefferies CRB Index has lost 15 percent since copper reached its record May 11, putting commodities on course for their first annual decline in five years. The global economy may expand 4.9 percent in 2007, down from 5.1 percent this year, the International Monetary Fund said in September.

``In all bull markets, there are always corrections along the way, and there will be corrections in this one, too,'' said Beeland's Rogers, who wrote ``Hot Commodities'' and has been urging investors to buy commodities since at least 2003. He added, ``We are already having corrections in some, such as oil, copper, sugar. On the other hand, some commodities are making all-time highs. They are not correcting right now.''

Rogers, in an interview, said any decline would be a good time to buy because the broader bull market has years to run, led by demand from China, the world's biggest consumer of most metals.

China Bulls

China's economy grew 10.4 percent in the third quarter, down from 11.3 percent in the prior three months. Chinese crude steelmaking climbed 24 percent in November from a year earlier. Fixed-asset investment in urban areas rose 26.6 percent in the first 11 months, the National Bureau of Statistics said.

``The only countervailing force'' is China, said UBS's Hickson. Chinese metal consumers ``may increasingly re-enter the market in 2007, supporting the global fundamentals.''

Even Casciano, the Pacorini warehouse executive, said it may be too soon to call the end of the copper rally. Warehouses may be getting metal from consumers who don't want inventories on their books at year-end, he said.

``If inventories keep going up into the first quarter, then we can reread the situation,'' Casciano said.

Winners, Losers

Copper is the sixth-biggest gainer this year on the CRB index, after nickel, corn, orange juice, wheat and silver. The index has lost 6.25 percent as natural gas plunged, sugar fell from a 24-year high and oil failed to sustain its record price. The 37 percent slide in natural gas was the most of any commodity this year, sparking $6 billion in losses at Amaranth Advisers LLC before the hedge fund collapsed.

Next year's commodity winners may include soybeans, which are poised to jump to a 15-year high as U.S. farmers, the world's biggest producers of the oilseed, devote more land to corn.

Gold may extend its rally as the dollar weakens and slowing economic growth prompts investors to seek a haven for their cash. JPMorgan Chase & Co. increased its ``long-term'' price forecast for gold by 9.5 percent last week on expectations for ``robust'' demand.

``Gold's going to be the phenomenon of 2007,'' said Michael Metz, chief investment strategist at New York-based Oppenheimer & Co., which has about $10 billion in assets. ``If I had to choose one commodity, I'd stick with gold.''

`Way Overpriced'

Unlike gold, so-called base metals may not build on their record run. Speculators had sold a net 17,526 New York copper futures to bet against prices as of Dec. 12, the Commodity Futures Trading Commission said in Washington on Dec. 15.

``The cost of taking copper out of the ground is so low, I don't know how we can justify these prices,'' said Warren Gelman, 73, president of distributor Kataman Metals Inc. in St Louis. ``$4 overwhelmed me. $3 copper is way overpriced.''

Prices surged this year as investors piled into commodities, chasing returns that beat stocks and bonds for three of the past four years. Investments in commodities may exceed $120 billion by 2008, compared with $80 billion last year, Barclays Capital estimates.

The year's biggest surprise was ``the rapidity with which commodities as an alternative asset class has been embraced by the investment community,'' Ahmadzadeh said in an interview. Next year's surprise may be ``the unanticipatable velocity with which price declines might occur in the event that there is short-selling,'' or bets against prices, he said.

Evidence Mounts

Metal stockpiles are swelling as mining companies raise production. Spending on exploration this year increased by 47 percent to $7.13 billion, Halifax, Nova Scotia-based Metal Economics said Nov. 8. Joy Global Inc., a maker of mining equipment, today reported record orders for machinery such as shovels, drills and draglines.

Supplies of copper in warehouses monitored by metals exchanges in Shanghai, London and New York rose to a high of 233,220 metric tons last week, compared with 72,773 tons on July 13, 2005.

Metals demand is suffering as the U.S. housing market loses steam. The average U.S. single-family house uses 439 pounds of copper, according to the Copper Development Association in New York. A refrigerator uses almost five pounds of the metal.

The Federal Reserve kept the benchmark overnight interest rate at 5.25 percent on Dec. 12 and suggested a softer outlook for the economy. Growth this quarter will slow to an annual rate of 2 percent, according to a Bloomberg survey of economists.

Steel, Zinc

Nucor Corp., the second-largest U.S.-based steel producer, on Dec. 12 said production and shipments in the fourth quarter may drop 12 percent to 15 percent from the prior three months because of rising inventories. Zinc is used to make steel rust- resistant.

``The upside is quite limited,'' said Paul Sutherland, chief investment officer for Traverse City, Michigan-based Financial & Investment Management Group, which manages about $600 million. ``There's not a lot of profit left to be made. You want to get out of the way.''

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Christopher Donville in Vancouver at cjdonville@bloomberg.net

Last Updated: December 18, 2006 12:32 EST