Sep 22, 2011 NEW YORK (Dow Jones)--Copper futures fell by more than 7% Thursday, plunging to their lowest levels in a year as signs of a slowdown in global manufacturing and disappointment with the Federal Reserve's latest effort to boost the U.S. economy sent traders cashing out of growth-sensitive assets.
Manufacturing in China and the euro zone, the two largest users of the industrial metal, contracted in September, according to separate reports released Thursday, adding to concerns that the struggles in world financial markets may hit demand for raw materials.
Copper for December delivery, the most actively traded contract, fell 27.55 cents, or 7.3%, to settle at $3.4885 a pound on the Comex division of the New York Mercantile Exchange, the lowest ending price for a most-active contract since September 2010, and down 25% from the record highs reached in February.
"Copper is telling you that the odds of a recession are increasing," said Adam Klopfenstein, a senior market strategist with MF Global. "It's hard to paint a positive picture" for the industrial bellwether with the current slate of worries about the global economy, he said.
Copper is found in a wide range of industrial and consumer applications, from wiring and plumbing to cars and trucks and consumer electronics, making the metal particularly sensitive to the growth outlook.
The benchmark contract has slipped by 17% in September, as worries that Europe was sliding toward a credit crunch and weaker economic data hit investor expectations for growth.
Purchasing managers indexes "have been signaling a slowdown for several months," said Frank Lesh, a broker with FuturePath Trading. "Not only China, but really everybody."
The Fed on Wednesday offered a gloomy economic outlook, and the central bank's plan to shift its portfolio to reduce long-term interest rates failed to support perceived risky assets. Global equities and commodities markets sold off sharply Thursday as traders digested the likely impact of the Fed's actions.
"The Fed has to be the leader," Klopfenstein said. "When the Fed comes out and says the economy has more downside risks, that tells me copper is going to go lower."
Despite the macroeconomic concerns weighing on the minds of copper traders, some analysts expect a tight supply picture to keep a floor under the market.
Goldman Sachs on Thursday lifted some of its copper-price forecasts, saying that the supply and demand situation should keep the market supported. The investment bank said it would take a global recession or financial crisis to derail its view that higher prices are ahead.
"Expectations of continued strong economic growth in emerging markets and China in particular, continue to suggest tightening copper fundamentals that will push prices higher over the next year," Goldman analysts wrote.
Copper settlements (ranges include electronic and pit trading):
Sep $3.4805; down 27.30 cents; Range $3.4300-$3.6925
Dec $3.4885; down 27.55 cents; Range $3.4120-$3.7200