Trafigura fund sees metals weak, but long-term buy

LONDON (Reuters) - Base metals prices will fall further over the next six months, but supply problems will make copper and tin in particular a good buy in the long run, a top executive at major commodities trader Trafigura told Reuters.

"Long-to-medium term we like copper and tin, although copper probably has got a pretty long way to go on the downside," said Jeremy Weir, chief executive of Galena Asset Management, a subsidiary of the privately-owned Trafigura Group on Monday.

"Over the next three to six months base metals will still underperform ... but moving into the middle of next year I would expect a reasonable recovery to start."

Swiss-based Galena Asset Management manages $750 million across three resource funds and year-to-date its metals fund is up by 8 percent.

"The long-term bull market story is very much intact but what we are seeing is a significant correction in financial markets," Weir said.

Copper, mainly used in the construction and power industries, fell by 15 percent last week -- its biggest weekly drop ever -- as poor economic data from Europe and the United States fueled negative sentiment amid a financial turmoil.

"We are seeing deleveraging with investors pulling money back into cash and effectively getting out of commodities, equities or whatever ... that theme will continue for the next quarter or so," Weir said.

But once confidence returns with banks starting to recapitalize and lend money, and investors with cash realizing their returns are not high enough, people would look at commodities again as an asset class, Weir said.

"We still use these metals, we need them and the underlying market remains fairly robust long-term ... I don't believe the China story is over, despite poor economic figures coming out over the next few months," he said.

China is copper's top consumer and together with tin the two metals were seen benefiting from difficulties with supply.

Despite a negative performance this year, copper, aluminum and tin on the London Metal Exchange are the best performing metals with the others; lead, zinc and nickel down by between 35 to 47 percent.

"The cutbacks which are being seen in the nickel and zinc industry will probably put those metals in a good state going forward," Weir said, adding aluminum would have to see some capacity reductions before recovering.

Aluminum has lost 6 percent this year with LME inventories rising to 1.39 million tonnes, the highest since February 2004.

Trafigura is the world's third largest independent oil trader and second largest independent trader in the non-ferrous concentrate market with a turnover of $51 billion in 2007, according the firm's website.

(Reporting by Anna Stablum, editing by Michael Roddy)