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BASE METALS: Copper Drops On US Rating Downgrade, Growth Fears
Aug 9,2011 09:00CST
industry news
Source:SMM
Copper futures fell Monday as the U.S. credit rating downgrade triggered fresh concerns about further economic slowdown.

Aug 08, 2011 (Dow Jones Commodities News via Comtex) -- --Comex September copper down 4.45 cents, or 1.3%, at $4.0625 a pound

--Copper futures are down 9.5% this month on fears of global slowdown

--S&P U.S. credit downgrade has added to economic concerns

--Production resumes after strike ends at world's largest copper mine

By Amy D'Onofrio
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Copper futures fell Monday as the U.S. credit rating downgrade triggered fresh concerns about further economic slowdown.

Standard & Poor's downgraded the U.S. credit rating to double-A-plus after markets closed Friday. The credit rating firm cited "political brinkmanship" as part of the reason for its decision, pointing to weeks of U.S. debt ceiling negotiations that narrowly avoided a default with a last-minute accord.

S&P's move is expected to raise the cost of borrowing for the U.S. Treasury and have wide reverberations throughout the economy as the cost of everything from car-loans to credit cards increases.

Copper prices are considered a bellwether of economic growth since the metal is used in goods like laptops and cars, and demand for those goods tends to decrease as the economy slows.

The most actively traded contract, for September delivery, was recently down 4.45 cents, or 1.3%, at $4.0625 a pound on the Comex division of the New York Mercantile Exchange.

Thinly traded August-delivery copper was down 3.65 cents, or 0.9%, at $4.0765 a pound.

"It's about the economy, really we're having very strong correlation with equity markets," said Frank Lesh, a broker and analyst with FuturePath Trading in Chicago, Ill.

Copper prices are down 9.5% this month after being caught in a commodity-wide decline due to fears of a global slowdown. Investors continue to shed risky assets and are turning to perceived safe-haven assets like gold following the downgrade.

With many commodities under pressure, Lesh said copper will likely follow equities lower this week as fundamental supply and demand aren't the main factors for traders.

"Now it's about the macro picture and weakness of the world economy," Lesh said.

Copper faced losses last week as weak manufacturing data raised concerns about U.S. and European growth.

A stronger U.S. Dollar is also weighing on copper. Dollar-denominated contracts like Comex futures appear more expensive to buyers holding foreign currencies when the dollar rises.

The ICE Dollar Index was recently at 74.792, up from 74.549 late Friday in New York.

Production disruptions at the world's largest copper mine were a source of support for copper prices last week, but a 15-day worker strike at BHP Billiton Ltd.'s (BHP) Escondida mine in northern Chile ended Friday and operations there are back on track.

 

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