Copper, Aluminum Pare Quarterly Losses as Weaker Dollar Fuels Metal Demand

Copper and aluminum pared their biggest quarterly declines since 2008 in London as the dollar weakened against the euro for the first time in three days amid concerns over the strength of the global economy.

In the U.S., the world’s second largest copper and aluminum consumer after China, the Institute for Supply Management- Chicago Inc. is forecast to show its business barometer falling to 59 in June from 59.7, according to a Bloomberg survey. The dollar dropped as much as 0.5 percent against the euro on concern the recovery in the world’s largest economy is waning. A weaker dollar makes metals priced in the currency cheaper in terms of other monies.

A declining dollar supported prices, said Randy North, a trader at RBC Capital Markets in London. “The broader economic picture is still very uncertain,” he said.

Copper for delivery in three months climbed $34, or 0.5 percent, to $6,528 a metric ton at 9:41 a.m. on the London Metal Exchange. The contract dropped 16 percent this quarter, the biggest fall since the last three months in 2008. Futures for September delivery gained 0.9 percent to $2.9575 a pound on the Comex in New York.

Copper prices fell the most in six weeks yesterday after U.S. consumer confidence fell to the lowest level since March and a leading economic index for China was lowered, according to the New-York based Conference Board. Today’s U.S. business activity report is due at 2:45 p.m. in London.

European Banks’ Health

Copper has dropped 12 percent this year as the dollar gained and investors speculated that monetary tightening in China and the European sovereign-debt crisis may curb demand.

The health of Europe’s banks may be exposed today when the European Central Bank offers them three-month loans before a landmark 12-month facility has to be paid back. Banks tomorrow need to repay 442 billion euros ($540 billion), the biggest amount ever awarded by the ECB and a key plank in its efforts to fight the financial crisis.

As “growth expectations peak” for member states of the Organization for Economic Cooperation and Development and “an industrial slowdown continues in China, we do expect further downside to copper prices over coming months,” Paul Galloway, a mining analyst at Sanford Bernstein in London, wrote in a report today.

Stockpiles of copper tracked by the LME fell for an ninth day to 451,100 tons, the lowest level since Dec. 4. Bookings to remove metal from warehouses jumped 10.7 percent to 34,575 tons, the highest since March 3.

‘Copper Story’

The market is forecast to show “a small surplus this year, followed by a small deficit in 2011,” wrote Sanford Bernstein’s Galloway. With the copper market tightening this year and next and “continued investor belief in the copper story” prices are expected to move higher than today’s level, Galloway said.

Prices for immediate delivery are expected to average $6,780 a ton this year, rising to $7,000 a ton next year and $8,000 in 2012, Galloway said.

Aluminum for three-month delivery on the LME gained 0.3 percent to $1,953 a ton. The lightweight metal is heading for a 15.9 percent drop this quarter. Lead rose 0.7 percent to $1,732 a ton, nickel gained 1.3 percent to $19,325 a ton and zinc climbed 1.8 percent to $1,774.25 a ton. Tin fell 0.8 percent at $17,452 a ton.

To contact the reporter on the story: Anna Stablum in London at astablum@bloomberg.net.

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