Aluminum Falls in London as Reduced Lending May Widen Surplus

Stockpiles in warehouses monitored by the London Metal Exchange rose 3,050 metric tons to 1.36 million tons, for a 15 percent gain in the past week. Production of the metal used in cars and beverage cans was 3.36 million tons in August, the highest in at least a year, the International Aluminium Institute said yesterday.

''It's very hard to be positive about aluminum when inventories keep climbing,'' said John Reade, an analyst at UBS AG in London. ''There are large stockpiles off LME warehouses and we suspect the credit crunch is making financing of these inventories more difficult.''

Aluminum for delivery in three months dropped $25, or 1 percent, to $2,523 a ton as of 9:35 a.m. on the LME, after gaining 2.1 percent the previous two days. The contract has climbed 5 percent this year.

Production of aluminum outpaced demand by 842,000 tons in January through July, up from a surplus of 17,000 tons a year earlier, the Ware, England-based World Bureau of Metal Statistics said last week.

The LME index of six industrial metals rose 2.3 percent yesterday, extending its rebound from a two-year low on Sept. 18. It gained as the dollar dropped to a three-week low against the euro, buoying demand for commodities as an alternative to the U.S. currency.

The dollar today advanced against the euro before Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke give testimony to the Senate on a U.S. government plan to rescue the banking system in the world's second-largest user of copper and aluminum. China is the biggest consumer of industrial metals.

Copper for delivery in three months dropped $160, or 2.2 percent, to $7,090 a ton.

Lead fell $30 to $1,960 a ton and zinc declined $45 to $1,795 a ton. Nickel dropped $150 to $17,325 a ton and tin decreased $78 to $17,572 a ton.

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