DJ BASE METALS: Copper Extends Losses, Falls 5% On Demand Worry

Sep 28, 2011 NEW YORK (Dow Jones)--Copper futures extended their earlier losses Wednesday afternoon, as worries that a global slowdown would curb demand for the industrial metal overwhelmed the fleeting optimism that had sparked a rally the previous day.

The most actively traded copper contract, for December delivery, fell 17.25 cents, or 5%, to $3.267 a pound on the Comex division of the New York Mercantile Exchange.

The declines erased the market's jump of more than 5% Tuesday. The view that the euro zone would bolster its bailout fund and recapitalize the continent's banks had spurred buying across commodities and equities. But the upward move proved to be short lived, as market watchers cast doubts on the prospects for an easing of the European crisis and suggested that copper prices stood to lose more ground in an economic slump.

"There are still a lot of risk factors on the table," said Adam Klopfenstein, a senior market strategist with MF Global. "It's going to take some time to get the growth generated to get copper above $3.50 (a pound) again."

Copper is sensitive to the growth outlook because of its widespread uses in construction and manufacturing, and the metal has come under bouts of intense selling pressure beginning in early August on the view that the global economy may be slipping toward recession. Worries about a default-spurred credit crunch in Europe and contracting manufacturing in China were behind the latest drop, analysts say.

"The copper market has cracked, and has followed other financial markets lower," analysts with Citi said Wednesday in a note. The analysts expect copper prices to slip to $3.17 a pound during the next three months, "driven by a weakening global economic outlook and financial uncertainty."

Global equities markets, which copper tends to track as a proxy for growth expectations, were mixed Wednesday. Exchanges in Frankfurt and London ended with losses, and U.S. stocks wavered between slight gains and losses.

Recent moves in global copper prices suggest that the copper market "is no longer expected to tighten in the near term," Bart Melek, head of commodity strategy with TD Securities, said in a note. "The previously anticipated strong imports into China may not materialize."

Copper prices have received a measure of support from the view that demand from China, by far the world's top consumer, would hold steady despite economic turmoil in the U.S. and Europe. With doubts surfacing about the likelihood that Asian buyers will step in to take advantage of declining prices, copper may have further to fall, analysts said.