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Copper prices may drop in aftermath of Katrina

Copper prices may fall in London and New York this week as investment funds sell the metal on speculation U.S. demand may slow following Hurricane Katrina.

Seventeen of 22 traders, analysts, investors and copper users surveyed by Bloomberg on Thursday and Friday predicted a decline. Four forecast a gain and one little change. The U.S. is the second-largest copper user. China is the biggest.

"Prices should fall a little as the funds are uncertain," John Meyer, an analyst in London for Numis Securities, said in an e-mail last week. "Mounting losses from Hurricane Katrina are a concern." Meyer forecasts copper will decline this week.

Copper for delivery in three months on the LME dropped 3.8 percent to $3,545 a metric ton last week. On the Comex division of the New York Mercantile Exchange, copper for December delivery fell 4.2 percent to $1.604 a pound, the lowest closing price for a most-active contract since Aug. 18.

On the Shanghai Futures Exchange, copper for November delivery closed down 0.9 percent to 34,520 yuan ($4,264) a ton. Chinese prices include 17 percent tax and 2 percent import duty.

President Bush has approved $62.3 billion of federal relief spending after Hurricane Katrina flooded New Orleans and devastated the Gulf coast. It may take as long as 80 days to pump the water out of New Orleans, Col. Duane Gapinski of the U.S. Army Corps of Engineers said Thursday.

The Congressional Budget Office said last week U.S. economic growth may be cut by 0.5 to 1 percentage point, while the nation may lose 400,000 jobs as a consequence of the disaster. The U.S. economy will grow at a 3.6 percent annual rate in the third quarter, down from the 4.1 percent gain predicted a month ago, according to the median estimate of 57 economists in a Bloomberg News survey.

The disaster has become the costliest in U.S. history, surpassing the $20.5 billion of damage to south Florida wrought by Hurricane Andrew in 1992.

"The collateral damage caused by Hurricane Katrina is seen extending into various areas of the U.S. economy," said Angus MacMillan, an analyst in London for Bache Financial, in a Sept. 8 e-mailed report.

The U.S. may need to spend $600 billion to rebuild infrastructure, deal with diseases, deaths and damage to the environment, Germany's Die Welt newspaper reported Sept. 9, citing Claudia Kemfert, the Berlin-based DIW economic institute's energy expert.

Copper use in the United States had slowed before Katrina. In the first six months of 2005, consumption dropped 9.7 percent from a year earlier, according to data released Friday by the International Copper Study Group, a Lisbon-based organization funded by copper producers.

"Copper demand appears to have fallen in the wake of Hurricane Katrina," said Thomas Au, an analyst at R.W. Wentworth in New York.

Copper consumption may rise as the U.S. economy recovers from the hurricane and begins reconstruction work, said Barclays Capital base metals analyst Ingrid Sternby in London. The U.S. economy may go "down then up," Sternby said in a Wednesday e-mailed report, citing Barclays's chief economist Larry Kantor.

Traders and copper users are also watching inventory levels, which have climbed in the past month as mining companies increase output to meet a forecast production shortfall. Stockpiles tracked by commodity exchanges in London, New York and Shanghai have surged 68 percent in the past month to 122,862 tons, according to data compiled by Bloomberg.

Copper production of 16 million tons last year fell short of demand by 709,000 tons, Goldman Sachs Group Inc. said in a report last month. There will be a surplus of 60,000 tons in 2005 and 310,000 tons in 2006, the bank said.

Still, copper output has been curbed by a strike at mines and plants operated by Asarco LLC, the second-biggest U.S. producer. The strike began July 2 after workers rejected a labor contract offered by management.

Contributing: Claudia Rach