Lead heads for biggest drop in London in 19 years on charts

Lead headed for its biggest drop in 19 years, leading other base metals lower in London, after charts used by traders showed gains last week were overdone.

The so-called relative strength index for lead has had a reading above 70 since Oct. 19, peaking at 84.48 last week. A reading above 70 indicates prices have risen too much and too fast, signaling a decline in likely.

"Overall, industrial metals have had a very strong run. A correction along the way isn't a surprise," Mark Mathias, chief executive officer at Dawnay Day Quantum, London-based fund manager, said today by phone.

Lead for delivery in three months on the London Metal Exchange lost as much as $205, or 12 percent, to $1,470 a ton. It was down $150, or 9 percent, at $1,525 as of 12:57 p.m. in London. A close at that price would be the biggest one-day drop since May 27, 1987. Lead traded at record $1,755 on Nov. 8.

The metal, used mostly in car batteries, has gained 57 percent in the past 12 months as output from mines and recycled scrap lagged behind demand, forcing consumers to tap stockpiles. Chinese consumption in the first eight months jumped 21 percent to 1.4 million tons, according to data last month from the Lisbon-based International Lead and Zinc Study Group.

Lead inventory tracked by the LME dropped 0.6 percent to 45,675 tons, the exchange said un daily report.

Prices of lead and zinc have been overextended, said William Adams, an analyst at metals information Web site Basemetals.com in Saffron Walden, England. Producers of the metals are selling to take advantage of record prices, he said.

Zinc Slides

Zinc, which traded at an all-time high of $4,580 a ton Nov. 10, dropped $190, or 4.4 percent, to $4,110 a ton.

Copper fell for a second consecutive trading session in London after a jump in stockpiles fueled speculation there will be an oversupply of the metal next year. Inventory monitored by the LME gained 2.1 percent, to 151,300 tons. That's the highest since April 2004. Stockpiles and slower demand growth have weakened prices, said ABN Amro Holding NV analyst Nick Moore.

"The stockpile gains increased the likelihood that the copper market is moving into a surplus," Moore said by phone in London. Moore, who has followed metals for more than 20 years, forecast copper supply will exceed demand by 100,000 tons next year, from a deficit this year.

Copper for delivery in three months on the LME lost $95, or 1.4 percent, at $6,825 a ton.

The metal will keep falling, Moore said. He predicted an average of $6,060 a ton next year for copper for immediate delivery. That's lower than seven of the 10 forecasts compiled by Bloomberg from other commodity analysts.

Also on the LME, aluminium dropped $57 to $2,638 a ton and nickel lost $360 to $29,040. Tin slid was unchanged at $9,775.