BASE METALS: Comex Copper Falls As Fear Grips Markets

NEW YORK, Aug 18, 2011 (Dow Jones) -Copper slumped 1.6% as a wave of fear about U.S. growth and Europe's financial stability swept investors out of economically sensitive assets like copper.

The most actively traded contract, for September delivery, fell 6.60 cents, or 1.6%, to settle at $3.9660 a pound on the Comex division of the New York Mercantile Exchange.

Copper for August delivery, the front-month contract, settled down 6.45 cents, or 1.6%, at $3.9645 a pound.

U.S. inflation accelerated by 0.5% in July while new jobless claims rose last week, highlighting the problems facing the U.S. economy.

The slew of downbeat reports set a bearish tone for copper trading. Copper is known as an economic bellwether because the red metal is used in everything from cell phones and air-conditioners to household plumbing and demand for the metals tends to wane as economic activity slows.

"Copper is just a weak market - if you have slow global growth you're going to have slower demand for copper," said Daniel Pavilonis, senior market strategist with MF Global.

Concerns that Europe's sovereign debt problems could destabilize its banking system and seep into the global financial system added to pressure on copper prices.

Investors have been heading for the exit since early August, when copper prices fell 12% over 10 trading sessions as fears about U.S. and Italian sovereign debt hit fever pitch. At the time market participation, measured by the number of open contracts, fell 47% to around 83,500 contracts as investors moved to the sidelines.

Despite the declines, copper prices are still "exceptionally high", said Scotiabank commodity economist Patricia Mohr. The average global copper production cost is around $1.35 a pound, leaving copper miners with a hefty profit when the red metal trades near $4 a pound.

Moreover, while market fears over Europe and the U.S. may make for volatile trading in the near term, China's dominance over global copper consumption means financial problems in the developed world have limited bearing on copper prices, said Mohr.

"The U.S. represents only 9% of world copper consumption, China is about 38%," she said.

China's copper imports were well below last year's levels in the first six months of the year, but an uptick in July was behind stronger copper prices that month.

Mohr anticipates Chinese buyers will return in force toward the year end, saying "in the fourth quarter there's every chance that Chinese demand will pick up again."

Copper settlements (ranges include electronic and pit trading):
Aug $3.9645; down 6.45 cents; Range $3.9645-$3.9940
Sep $3.9660; down 6.60 cents; Range $3.9485-$4.0430