Copper Prices Drop as Inventories Rise to Highest Since May

LONDON, Sept. 18 -- Copper prices fell, halting two days of gains, as swelling inventories fueled concern that this year's rally lifted prices too high to reflect demand.

    Stockpiles tallied by the London Metal Exchange expanded for a 15th day, to 324,375 metric tons, the most since May 26. Inventories have increased 8.5 percent this month after rising 6.4 percent in August and 5.6 percent in July. In Shanghai, inventories rose 12 percent last week to 97,396 tons, the highest level since June 2007.

    "The price should adjust to the high inventories and a looming oversupply," said Eugen Weinberg, a Commerzbank AG analyst in Frankfurt. "We have had huge increases in stocks on the LME and in Shanghai, and there are probably undisclosed inventories in China as well."

    Copper futures for December delivery slid 4.05 cents, or 1.4 percent, to $2.896 a pound on the New York Mercantile Exchange's Comex division. Earlier, the price rose as much as 0.6 percent.

    The metal fluctuated between gains and losses, mirroring movements in the dollar. Copper rose as the dollar declined against the euro after separate reports added to signs that the U.S. economy is reviving. The currency weakened as investors sought higher-yielding assets.

    Philadelphia-area manufacturing expanded this month, the Federal Reserve Bank of Philadelphia said. The rate of expansion topped the median estimate of 56 economists surveyed by Bloomberg. Work began on U.S. housing units in August at the fastest pace this year, the Commerce Department reported.

    Dollar Index

    The U.S. Dollar Index, a six-currency gauge that includes the euro, yen and U.K. pound, fell for a third straight day, touching the lowest in almost a year before paring the decline.

    Some traders buy commodities as the greenback weakens to hedge against inflation. Copper prices have doubled this year, partly on prospects for increasing demand as the global economy recovers from the recession.

    Copper for three-month delivery fell $35, or 0.6 percent, to $6,385 a ton ($2.90 a pound) on the LME.

    Among other LME metals for three-month delivery, zinc, aluminum, nickel and tin rose. Lead dropped.

    (Source: Bloomberg)