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BLBG: Copper, Zinc, Aluminum Drop Limit for Second Day in Shanghai
By Glenys Sim

Oct. 7 (Bloomberg) -- Copper, zinc and aluminum slumped by the exchange-imposed daily limit for a second day in Shanghai on concern the deepening credit crisis will weigh on global growth and reduce demand for raw materials.

Copper fell to a 2 1/2-year low today in Shanghai, while zinc plummeted to its lowest since trading began last year as stocks and commodities around the world plunged. A seizure in credit markets has led central banks worldwide to inject billions of dollars into the financial system.

``It's not looking good at all,'' Li Rong, chief analyst at Great Wall Futures Co., said from Shanghai today. ``Investor confidence has been badly shaken and people are just scrambling to exit, so the markets in the next few days will continue to move to the downside.''

The metal for December delivery on the Shanghai Futures Exchange dropped by 2,570 yuan, or 5 percent, from the previous settlement price, to 48,640 yuan ($7,111) a ton when the exchange opened for trading at 9 a.m. local time and closed the day at that level. This is down 42 percent from its record, and the lowest for a most-active contract since March 2006.

Copper in London tumbled as much as 9.1 percent yesterday, before closing 7.5 percent lower on recession concerns and as the dollar climbed to a 14-month high against the euro. The metal, used in pipes and wires, has declined 37 percent from its $8,940 record July 2.

Three-month delivery copper rose 1.5 percent to $5,641 a ton on the London Metal Exchange at 3:10 p.m. in Singapore, after earlier falling to $5,512 a ton. Equities and commodities rebounded after Australia lowered borrowing costs more than expected, prompting speculation central banks around the world will follow suit to save their economies from the credit squeeze.

Zinc, Aluminum

Zinc for December delivery in Shanghai tumbled its 6 percent limit to 12,845 yuan a ton, the lowest for a most-active contract since futures started trading at the end of March 2007.

The markets in China are mainly catching up on losses in the international markets last week during the country's week-long break, said Wang Feng, an analyst at Everbright Securities Co.

Shanghai aluminum for December delivery slumped by its 5 percent limit to 14,155 yuan a ton. The contract later pared losses to close the day at 14,265 yuan.

``Aluminum is one of the metals where we see limited downside to prices because of the proximity of current prices to production costs,'' Barclays Capital analysts led by Gayle Berry wrote in a monthly report. ``Many aluminum smelters buy power on a 'take or pay' contract basis so even if they stop production this fixed cost must still be paid.''

This makes shutting down an aluminum smelter an expensive exercise, and in some cases, continuing to operate the smelter generates less of a loss than closing it, Berry wrote.

Among other LME-traded metals, aluminum was up 1.3 percent at $2,280.25 a ton, zinc rose 0.7 percent to $1,560, lead gained 1.2 percent to $1,655, and tin climbed 2.2 percent to $16,550. Nickel was little changed at $14,286 a ton as of 3:16 p.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net