Copper down on demand fears, aluminum at 7-mth low

By Anna Stablum

LONDON (Reuters) - Copper prices in New York and London slipped and aluminum hit a seven-month low on Tuesday as the dollar rallied, oil prices tumbled and investors worried about demand for industrial metals.

"There are concerns about growth in the global economy and the effect any sort of slowdown will have on metals demand," said Sudakshina Unnikrishna, an analyst at Barclays Capital.

"It's not any shift in underlying fundamentals of supply and demand, it's really of lot of negative perceptions about the global economy which are affecting commodities as a whole."

London Metal Exchange three-month copper -- often seen as a key gauge of real economic activity -- closed at $7,270 a tonne, after shedding more than $200 on Monday.

Earlier, copper hit an intraday low of $7,128, down 2.4 percent and the lowest since August 12, compared with $7,305 at the close on Monday.

In New York, copper for December delivery shed 11.40 cents to close at $3.2730 a lb on the New York Mercantile Exchange's COMEX division, after sinking earlier to $3.1590 -- the contract's lowest price point since January 28.

"Copper is just getting dragged down by a lot of outside market forces ... especially the size of the move in crude oil," said Rob Kurzatkowski, futures analyst with OptionsXpress in Chicago.

U.S. crude oil futures settled down below $110 a barrel as energy companies assessed damage and geared up to restart energy infrastructure shut ahead of Hurricane Gustav, and as a resurgent dollar contributed pressure.

The Reuters-Jefferies CRB index .CRB hit 6-1/2 month lows as investors sold off their positions in oil and other raw materials following the weaker-than-expected impact from Gustav.

"It's gloom and doom," said Sean Corrigan, chief investment strategist at Diapason Commodities Management. "The world has woken up to the fact that economies are weakening pretty much across the globe."

Corrigan said it was vital copper held at $7,000 a tonne.

"If it breaks then the next move could be to $6,600 and all the way down to $5,800," he said.

LME copper stocks jumped 6,075 tonnes to their highest since January, at 179,800 tonnes, up 64 percent since the year low in May.

Rising stocks have pulled down the backwardation -- the premium for cash material over three-months prices -- to $25 per tonne. On July 17, the premium hit the year's high, at $241, with a dominant position capturing most of the market.

"With LME stocks increasing, backwardation easing, and macro economic data remaining weak, the near term outlook for copper looks negative," UBS analyst John Reade said in a report.