BASE METALS: Comex Copper Follows Stocks Lower

Aug 10, 2011 (Dow Jones) -- --Comex September copper down 3.15 cents, or 0.8%, at $3.9385 a pound

--Weak equities weigh on copper prices

--Fed economic forecast pressures prices lower

By Tatyana Shumsky
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Copper futures slipped Wednesday in sympathy with equity markets as the Federal Reserve's downbeat assessment of the economy weighed on traders.

The most actively traded contract, for September delivery, was recently down 3.15 cents, or 0.8%, at $3.9385 a pound on the Comex division of the New York Mercantile Exchange.

The front-month contract, for August delivery, was down 4.20 cents, or 1.1%, at $3.9250 a pound after just 16 contracts changed hands.

The Federal Reserve downgraded its outlook on the U.S. economy and said the exceptionally slow pace of growth warranted keeping interest rates near zero for the next two years. The monetary policy announcement was made Tuesday, after copper floor trading closed for the day.

"Copper is vulnerable to the slow economic outlook and the Fed [meeting] minutes indicate the economic pick up isn't going to happen any time soon," said Frank McGhee, head precious metals dealer with Integrated Brokerage Services in Chicago.

Copper futures fell in sympathy with the Dow Jones Industrial Average. Like stocks, copper is considered an economic bellwether because the metal is used in everything from iPhones to household plumbing and demand for such products slumps when the economy falters.

The red metal has struggled to recover from recent losses, which pushed prices below $4 for the first time in over two months.

"We're repricing our assets to match our new outlook, which is not quite as optimistic as it was before," said Frank Lesh, broker and analyst with FuturePath Trading.

A substantial slowdown in the U.S. economy could tip the balance in the physical copper market and pressure prices lower. In recent years, copper mine supply has struggled to keep pace with strong demand from fast-growing countries like China, the world's top copper consumer. However, a substantial decline in copper demand from the U.S., the second-largest copper consumer, could reverse this trend.

"If the Fed's revision is correct ... you could see copper stockpiles build and that will keep pressure on the market because there will be more than enough supply," McGhee said.

A welcome respite, however, came from Chinese economic data overnight, which showed a 9.5% monthly uptick in July copper imports, though levels are still down 11% from last year.

"Until we get a clearer picture on demand, copper is going to suffer," said Lesh.