By Reg Curren Nov. 25 (Bloomberg) -- Natural gas in New York fell for the first time in three days on concern a deteriorating U.S. economy will cut demand for the heating and industrial fuel. An Energy Department report last week showed that stockpiles of gas rose unexpectedly amid slowing demand and mild weather. Factories, power plants and commercial demand account for about 42 percent of gas consumption. “U.S. steel production, for example, has collapsed,” said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary. “There are these pockets of real weakness, so between the bump in supply and the erosion in demand, it’s not being offset by space heating yet.” Natural gas for January delivery fell 31.5 cents, or 4.6 percent, to $6.512 per million British thermal units at 10:24 a.m. on the New York Mercantile Exchange. The futures gained 5 percent yesterday. Prices have dropped 13 percent this year. King estimates U.S. supplies have been outstripping demand by as much as 3 billion cubic feet a day since early October. Inventories reached 3.488 trillion cubic feet in the week ended Nov. 14, according to the Energy Department. Natural gas production is expected to gain 6 percent in 2008 from a year earlier, outpacing demand expansion of 1.1 percent, the Energy Department said. In 2009, gas output may rise 2 percent versus a 0.2 percent contraction in consumption. Steel Mills U.S. raw steel production fell 3.8 percent last week to 1.348 million tons from 1.4 million tons a week earlier, the American Iron and Steel Institute said yesterday. Compared with a year earlier, production was 36 percent lower. “Overall economic demand for gas is weighing” on prices, said Stephen Schork, president of Schork Group Inc. of Villanova, Pennsylvania. “We simply have a situation where we have a sizable overhang of supply.” Until lower temperatures take a meaningful bite out of storage, gas prices will remain under pressure, he said. “I can’t get too excited about natural gas right now,” Schork said. “It’s still quite a bearish environment. The market is not concerned about demand relative to supply.” Inventories in the week ended Nov. 14 were 140 billion cubic feet, or 4.2 percent, above the five-year average for that time of year, Energy Department data show. Supplies probably fell 43 billion cubic feet in the week ended Nov. 21, based on the median of 10 analyst estimates compiled by Bloomberg. The average change for the week over the past five years is a decline of 14 billion cubic feet. The department is scheduled to release its weekly update on stockpiles at noon tomorrow in Washington. To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

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