BASE METALS: NY Copper Slides 6% As Demand Worries Continue

Sep 23, 2011 NEW YORK (Dow Jones)--Copper prices plummeted for a second day Friday, falling by 6% as traders bet that a deteriorating global economic outlook will slash demand for industrial metals.

The most actively traded copper contract, for December delivery, slumped 20.85 cents, or 6%, to $3.28 a pound Friday on the Comex division of the New York Mercantile Exchange, the lowest ending price since August 2010. The contract tumbled 17% this week. 

Copper futures had plunged by more than 7% Thursday. Disappointment over the Federal Reserve's latest effort to stimulate the U.S. economy and its gloomy outlook, along with signs of a slowdown in China and the euro zone, had slammed commodities and equities markets.

The mood in other markets was calmer Friday, with U.S. equities holding gains at the close of Comex floor trading, but traders continued to cash out of metals. Industrially focused precious metals fell sharply, led by a 17% plunge in silver futures.

Copper is particularly sensitive to the economic outlook because of its widespread use across industries, and the metal has seen steep declines as investors lowered their expectations for global growth.

"We've entered some kind of bear market in base metals," said Justin Lennon, an analyst with Mitsui Bussan Commodities. "Manufacturing sentiment in the [U.S.] is horrible."

Both the U.S. central bank and the International Monetary Fund voiced downbeat outlooks on the global economy this week.

With world markets starting to take into account a possible financial crisis, "there is no doubt there is still plenty of room for base metal prices to fall," FastMarkets analyst William Adams said in a note. "Given the losses in recent days, rebounds could be sharp. However, we still feel the downtrends have further to run in the days and weeks ahead."

Despite copper's steep declines, some analysts say a tight supply picture still points to stable or higher prices for the metal. Goldman Sachs on Thursday increased some copper price forecasts, saying that it would take a global recession to upset its bullish view on the industrial metal.

Barclays Capital analyst Nicholas Snowdon said in a note that "underlying market fundamentals have yet to offer any credence to the degree of price declines now seen over the past week."

The global copper market was in a deficit of 130,000 tons during the first six months of the year, the International Copper Study Group said this week, as mine supply failed to keep up with rising demand.

Supply shortfalls on labor strikes have threatened to further erode supply. Workers at Peruvian copper mining company Sociedad Minera Cerro Verde (CVERDEC1.VL) said they would strike in an effort to get higher pay beginning Sept. 28. The company, Peru's third-largest copper producer, is majority owned by Freeport-McMoRan Copper & Gold Inc. (FCX).

Copper settlements (ranges include electronic and pit trading):
Sept. $3.2720; down 20.85 cents; Range $3.2510-$3.4080
Dec.  $3.2800; down 20.85 cents; Range $3.2150-$3.4950