Oct. 14 (Bloomberg) -- Copper headed for its first weekly drop in four in London as investors sold the metal on speculation that prices won't rise further amid slowing demand and forecasts of a production surplus in 2006.

Global usage fell 1.2 percent to 9.7 million metric tons in the first seven months of 2005, the Lisbon-based International Copper Study Group said yesterday. The group, which is funded by copper producers, said North American usage fell 8.5 percent while European Union demand declined 9 percent.

The data is ``bearish'' for copper, said Maqsood Ahmed, an analyst at Calyon Global Trading, one of the 11 companies that trade on the floor of the London Metal Exchange, in a telephone interview today. ``The market is now moving into surplus.''

Copper for delivery in three months on LME fell $10, or 0.3 percent, to $3,828 a ton as of 11:21 a.m. London time. The metal has dropped 3 percent since trading at a record $3,967 on Oct. 12. The contract is 2.2 percent lower this week.

The copper market has had a production shortfall since 2003, according to data compiled by Standard Bank in London. That may end as output catches up with demand for the metal, which is used in water pipes and power cables.

The deficit in January through July narrowed to 235,000 tons compared with 784,000 tons a year before, the study group said. Ahmed said in a report yesterday that output in 2006 may exceed usage by more than 500,000 tons.

`Price Correction'

Copper has gained 22 percent this year, outpacing other metals on the LME. That performance has attracted investors, some of whom have cut their holdings after the metal rose to a record.

``A price correction was due,'' said Ingrid Sternby, an analyst in London at Barclays Capital, in a telephone interview today. ``We could see prices coming off more.''

Copper for December delivery on the Shanghai Futures Exchange fell 200 yuan, or 0.5 percent, to 36,660 yuan ($4,532) a metric ton.

``Traders with long positions sold copper to harvest gains from previous record highs,'' Wang Zheng, a trader with Shanghai- based Dalu Futures Co., said today by telephone.

Inventory tracked by the LME dropped 2.7 percent to 67,325 tons, the exchange said in a daily report today. Stockpiles monitored by the Shanghai exchange rose 15 percent this week to 33,921 tons.

Aluminum headed for its second consecutive weekly gain on the LME. The metal was up $3, or 0.2 percent, at $1,935 a ton. It's gained 1.4 percent this week.

Aluminum demand will grow 4.3 percent in 2005, exceeding production by 250,000 tons, Societe Generale forecast Oct. 3. In 2006, the shortfall will be 600,000 tons, the bank said.

Alcoa Inc., the world's largest producer of the metal used in beverage cans and aircraft, said yesterday it may close a 195,000 ton-a-year smelter in Maryland because of high power costs. Alcan, the No. 2 producer, also said yesterday it will close a 66,000-ton plant in France.

``The fundamentals generally suggest that prices will move higher,'' Sternby said.

Nickel gained $25, or 0.2 percent, to $12,225, zinc increased $7 to $1,485, lead rose $5 to $950 and tin was up $45 to $6,505.

To contact the reporter on this story: Simon Casey in London scasey4@bloomberg.net

Last Updated: October 14, 2005 06:25 EDT