Metals dive as recessionary chill freezes investors

By Michael Taylor

LONDON (Reuters) - Copper fell more than 9 percent to its lowest point since March 2006, while aluminum sank to its weakest level since December 2005 on mounting fears of a looming recession.

Markets across the globe have plunged as investors and traders have panicked, believing government and central bank efforts to shore up banks will not be enough to prevent a global recession and financial meltdown.

"There's probably more downside (to come) -- we've yet to see the downturn really being priced into these markets," said Michael Lewis, global head of commodities research at Deutsche Bank. "Obviously industrial metals and energy are the most exposed.

"The banking sector problem is now spilling over into other sectors ... it's obviously quite a powerful negative demand shock. Copper does look the most exposed."

By 1034 GMT, copper for three-months delivery on the London Metal Exchange fell to $4,890 from $5,315 at the close on Thursday and compared with a session low at $4,800.

Prices of the metal used in power and construction have fallen about 45 percent since a record high of $8,940 in July.

Copper is now very close to $4,000, the average cost of production, according to some analysts. Others say average costs are just above $3,000 a tonne.

Data showing a 59 percent surge in copper inventories at warehouses monitored by the Shanghai Futures Exchange also hit sentiment.

Somber PICTURE

Aluminum hit $2,190, its lowest since December 2005 and was last at $2,230 from $2,307. The metal used in transport and packaging has come under pressure in recent weeks on news of deteriorating car sales data from auto makers.

Analysts said energy-heavy aluminum had broken through its average cost of production floor, but would not give a figure because of power cost fluctuations. Energy is estimated to account for up to 45 percent of aluminum smelting costs.

"It's a very, very somber picture," Stephen Briggs, commodity strategist at RBS global Banking & Markets. "There is only one game in town -- economic meltdown."

Government and central bank action to break the gridlock in credit markets, shore up banks and stave off economic recession has failed to steady financial markets.

Finance ministers and central bankers from the Group of Seven nations meet in Washington later on Friday to devise a strategy to end panic selling in financial markets.

"We've had all this government action but there is still huge concern in all markets and this is a reflection of it," Briggs said.