By Anna Stablum Dec. 7 (Bloomberg) -- Copper fell for a third day in London as the dollar strengthened, reducing the appeal of commodities as an alternative investment, and inventories rose further. The dollar gained as much as 0.7 percent against the euro, making metals priced in the U.S. currency more expensive in terms of its single European counterpart. Inventories of copper in warehouses monitored by the London Metal Exchange increased for a 25th day to the highest level since April 21, according to a daily exchange report. “There is a bit of profit-taking, as the stronger dollar is dragging the market lower,” Randy North, a trader at RBC Capital Markets in London, said by phone. “The rise in inventories is a result of a slowdown in Chinese restocking.” Copper for three-month delivery fell $75, or 1.1 percent, to $6,965 a metric ton on the LME at 10:05 a.m. local time. The contract last week rose as high as $7,170, the highest level since Sept. 23, 2008. Copper for March delivery dropped 1.9 percent to $3.1775 a pound on the New York Mercantile Exchange’s Comex unit. Copper for immediate delivery will average $7,050 a ton next year, 14 percent above a prior forecast, Leon Westgate, an analyst at Standard Bank Group Ltd. in London, said in a report dated Dec. 4. The metal has averaged about $5,041 this year. A potentially weak first quarter was likely to be offset by a strong second quarter, Westgate said. Supply Shortfall RBC expects a deficit in the copper market next year as the increase in stockpiles reverses in the first quarter of 2010, North said. Inventories gained 1.5 percent to 452,550 tons today and have jumped 33 percent this year. Expectations of revived demand have helped copper to more than double this year, along with a slumping dollar and record first-half imports into China as the world’s biggest user restocked metals inventories. Growth in developing countries “remains the primary driver behind the dramatic recovery in commodity prices in 2009 and seems set to continue into 2010,” Lawrence Eagles and Jennie Byun, analysts at JPMorgan Securities Ltd., wrote in a report today. Demand in the Organization for Economic Cooperation and Development’s 30 member states remains weak, and inventories of all main industrial metals traded on the LME probably will climb until next year’s second quarter, they said. OECD Restocking “Heading into 2010, we expect OECD countries to embark upon a restocking process given extremely low working inventories, but that process is only likely to gain momentum in the second quarter,” Eagles and Byun said. The U.S. Dollar Index has slid 6.3 percent this year as the Federal Reserve held interest rates near zero in an effort to revive the economy. Fed officials acknowledged last month that the record-low borrowing costs might fuel “excessive” speculation in financial markets and possibly dislodge expectations for low inflation. Among other LME metals for three-month delivery, aluminum fell 1.2 percent to $2,123 a ton. The contract reached $2,166 on Dec. 3, the highest since Oct. 30 last year. The lightweight metal for immediate delivery probably will average $2,210 next year, Standard Bank’s Westgate said. Nickel shed 0.6 percent to $15,900 a ton. Stockpiles monitored by the LME have jumped 82 percent this year to 142,860 ton. The gain has triggered a downward revision of forecasts for nickel prices, according to Standard Bank. The metal for immediate delivery is expected to average $18,150 next year, rising to $22,300 in 2011, Westgate said. Lead declined 1.9 percent to $2,320 a ton, and zinc fell 2.1 percent to $2,320 a ton. Tin shed 2.3 percent to $14,930 a ton. To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net

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