UPDATE 7-Copper trims gains after recovery from 3-yr low

* Copper trims gains as short-covering bounce fades late

* Copper and aluminium touch lowest since July 2005

* Price floor comes down in line with production costs
(Adds NEW YORK to dateline, recasts, updates with New York
closing copper prices, adds analyst comments)

By Chris Kelly and Anna Stablum

NEW YORK/LONDON, Nov 21 (Reuters) - Copper surrendered a
portion of its short-covering recovery from new 3-year lows late
Friday as sellers sat ready and willing to puncture any price
bounce amid a still-bearish demand outlook for the industrial
metal.

"The most industrial of the commodities are going to do the
worst, so it's not hard to understand the short-covering rally
that we had earlier in the day and then the very willing selling
component still pressing that market lower ... coming all the way
back down to unchanged late in the day," said David Meger, metals
analyst with Chicago-based Alaron Trading.

Copper for March delivery HGH9 ended down 0.10 cent at
$1.5790 a lb on the New York Mercantile Exchange's COMEX division,
after sinking overnight to a new low dating back to July 2005, at
$1.5250.

Copper for three-months delivery MCU3 on the London Metal
Exchange fell to $3,375 per tonne, its lowest since July 2005,
before closing at $3,540 from Thursday's close of $3,480. The
metal fell around 3 percent on Thursday.

"Until there is a turnaround in the physical demand picture it
seems unlikely that these rallies will be sustained for any
significant period of time," Leon Westgate, an analyst at Standard
Bank, said.

Aluminium followed copper's lead, hitting three-year lows
before ending the session little changed.

GLOOMY OUTLOOK

"From a fundamental perspective things still look very ugly
for at least the next couple of quarters," analyst Gayle Berry at
Barclays Capital said.

Copper prices in London have dropped almost 6 percent so far
this week on worries about demand, following weak housing data,
problems in the auto sector, dismal jobs data and a slump in U.S.
equities to their lowest in a decade.

"By looking at historical data the copper price could fall as
far as $2,000 per tonne, analyst Michael Widmer at BNP Paribas
said in a note.

"Production costs come with caveats. Yet, they can be a broad
guideline for a bottom in metals quotations, as producers are
unable to operate sustainably with negative margins."

One of the main difficulties when looking at production costs
is that they have come down together with a general fall in
commodity prices, in particular energy costs for miners.

"Freight, energy and iron ore costs are falling, so production
costs are like a moving target," Berry said, adding that as the
components of those costs begin to fall so does the price floor
for the various metals.

Inventories of copper, used widely in power and construction,
are currently at 283,125 tonnes, having risen around 20 percent so
far in November.

Stockpiles in Shanghai Futures Exchange warehouses fell 3,797
tonnes, or 18 percent, to 17,699 tonnes, more than expected but
not enough to offset rising stocks and a growing surplus in the
international market. [ID:nBJD000449]

The International Copper Study Group (ICSG) reported the world
refined copper market saw a surplus of 74,000 tonnes between
January and August, versus a surplus of 22,000 tonnes in the
year-ago period. [ID:nSP391524]

The picture is grimmer for aluminium. Inventories rose 2,025
tonnes to more than 1.72 million -- the highest since December
1994 -- pushing the three-month price MAL3 to $1,745 per tonne,
its weakest since July 2005.

The metal, used in transport, power and packaging, closed at
$1,748 per tonne from $1,785 on Thursday.

Aluminium prices could find a price floor at around $1,600,
said Widmer, when looking at the production cost for miners.

Anxiety about a potential failure of one or more of the big
three U.S. automakers to secure an immediate government bailout to
avert bankruptcy added to the worrisome industrial demand
outlook.

Battery material lead MPB3 closed at $1,183 a tonne against
$1,185/1,185.5 late on Thursday. Tin MSN3, which fell 7.6
percent in the previous session, closed at $11,500 tonne from
$11,905 on Thursday. Nickel MNI3 traded at $10,000 from $10,300
on Thursday.

Zinc MZN3 was unchanged at $1,180.

Metal Prices at 1954 GMT
Metal Last Change Pct Move End 2007 Ytd Pct

move
LME Cu 3495.00 15.00 +0.43 6670.00 -47.60
SHFE Cu* 26950.00 -740.00 -2.67 56880.00 -52.62
LME Alum 1765.00 -20.00 -1.12 2403.00 -26.55
SHFE Alu* 13260.00 -155.00 -1.16 18180.00 -27.06
COMEX Cu** 157.10 0.25 +0.16 303.05 -48.16
LME Zinc 1170.00 -10.00 -0.85 2370.00 -50.63
SHFE Zinc* 9425.00 80.00 +0.86 18950.00 -50.26
LME Nick 10300.00 350.00 +3.52 26350.00 -60.91
LME Lead 1170.00 -60.00 -4.88 2550.00 -54.12
LME Tin 11650.00 350.00 +3.10 16400.00 -28.96
** 1st contract month for COMEX copper * 3rd contract month for
SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07
(Additional reporting by Julie Crust; Editing by Christian
Wiessner)