Metal prices and mining shares fell sharply on Thursday as speculators in commodity markets cashed in on strong price gains in recent weeks.

The falls came despite metal industry reports showing a pick-up in demand for copper, aluminium, lead and zinc at a time when supply growth is expected to remain constrained.

The benchmark three-month copper price fell $60 to $3,840 a tonne on the London Metal Exchange, a day after it hit a record of $3,984. The price has risen almost $500 a tonne in the past four weeks. Prices for aluminium, lead, nickel and zinc also declined.

The falls were accompanied by slides in mining shares with copper miner Antofagasta down 4.8 per cent to £14.70 a share. BHP Billiton, Anglo American, Rio Tinto and Xstrata, which all have significant copper businesses, were down by more than four per cent.

“There has been a lot of speculative money in commodity markets and at some point those speculators have to sell out to book a profit,” said Charles Kernot, director of metals and mining at Seymour Pierce.

Ingrid Sternby, metals analyst at Barclays Capital, said copper prices could afford to drop $200 a tonne without interrupting the long term upward price trend. “In technical terms, copper was looking overbought,” said Ms Sternby.

She said industry statistics showed the underlying fundamentals for metals was improving. The US Aluminium Association this week reported a sharp rise in US aluminium orders in September. Copper demand for September also picked up, according to the US copper industry body.

A report released yesterday by the International Copper Study Group showed global consumption growth was negative in the seven months to July.

It also indicated that the decline in demand was slowing, while China and India continued to consume copper at healthy rates of 15 and 11 per cent respectively. The International Lead and Zinc Study Group showed demand for both lead and zinc exceeding supply.

Mr Kernot said mining shares had come under pressure because many mining stocks had reached record highs in recent weeks, and investors were taking the view that there was limited upside.

“The outlook for earnings and metal prices is good for this year and next year, but soon investors will be looking into earnings for the 2007 year when metal prices and earnings will have passed their peak,” Mr Kernot said.