NEW YORK, Sep 19, 2011 (Dow Jones) -- Copper prices are showing strain amid worries that Europe's sovereign-debt problems will substantially erode demand and create a surplus of the industrial metal.

Futures on Monday hit a fresh low for the year, with the September contract falling 3.8% to $3.7715 a pound on the Comex division of the New York Mercantile Exchange.

As the second-biggest consumer after China, Europe holds a special place in the copper trade. Prices have mirrored the rise and fall of concerns about Europe's financial health for most of the year.

"The black cloud of sovereign debt in Europe" has been hanging over copper prices for months, stoking worries that the European economy would contract and undermining the widely held outlook that demand would outstrip copper supply this year, said Rob Kurzatkowski, senior commodity analyst with optionsXpress.

Analysts have forecast that this year's supply of copper would fall short of demand, with estimates generally ranging from a deficit of 300,000 tons to 600,000 tons.

The metal easily conducts electricity and doesn't rust in water, properties that have made it valuable in uses from household plumbing and electric wiring to cars and trucks and consumer electronics. Because of its widespread application across industries, the metal has been dubbed "Dr. Copper" for its role as a bellwether of the global economy.

The worry for the copper market is that the default of a euro-zone member may spark a credit crunch similar to that seen during the financial crisis in 2008, upsetting the flow of money around the world and curbing prospects for growth.

"In 2008, the market priced in the very worst scenario," said Nicholas Snowdon, an analyst with Barclays Capital.

That year, copper slumped by more than 60% between July and December, as investors bet that the near-collapse of the financial system would unhinge world copper demand.

Copper could see steep declines should Greece or another euro-zone member default, Snowdon said, but the likelihood of a collapse on the order of 2008 is slim.

"You don't need North America or Europe to be firing on all cylinders" to have supply fall short of demand, Snowdon said.

Sluggish growth in developed economies would nevertheless drag on the Asian economies that copper bulls have relied on, analysts with National Australia Bank said in a research note, as deteriorating global trade conditions and economic confidence would likely slacken activity at factory floors across the world.

Still, even after Monday's close, copper prices are higher than most of the last two years as investors remain focused on strong demand from top user China, which absorbs more than 35% of the world's copper each year. Europe accounts for 17% of world copper demand.

China's return to global copper markets in July had briefly reversed the steady decline in copper prices, and Beijing's plans to electrify China's vast rural hinterlands will likely drive brisk copper consumption growth for the next five years.

"Global metals market players see the genuine need from China, so it's unlikely prices are going to fall because China is always going to consume," said Zhao Bo, deputy director of the China Nonferrous Metals Industry Association's copper department.