Comex Copper Hits 2-Week Low On EU Debt Concern

Nov 09, 2011 NEW YORK (Dow Jones)--Copper futures fell for a fourth consecutive session Wednesday, as investors bet that the strains seen in the euro-zone financial system would take a toll on metals demand.

Italy's borrowing costs touched their highest level since the country began using the euro, raising worries that it could be in a position to seek a bailout if conditions continue to worsen. That sent investors to the safety of the U.S. dollar, and out of growth-sensitive commodities and equities.

The most actively traded copper contract, for December delivery, fell 9.2 cents, or 2.6%, to settle at $3.441 a pound on the Comex division of the New York Mercantile Exchange, the lowest settlement price since Oct. 25.

"It's all the same European fear trade," said Frank Lesh, a broker with FuturePath Trading. "Equities are down hard, and copper is going to be down hard with it. Equities are our proxy for the economic outlook at the moment."

European and U.S. equities markets slumped on concern that unlike smaller euro-zone countries that have already received internationally financed bailouts, the Italian economy may be too large to be comfortably supported by less-indebted nations.

The U.S. Dollar snapped higher in response, weighing on dollar-denominated copper futures by making them appear more expensive for buyers using other currencies.

The ICE U.S. Dollar Index on Wednesday touched its highest levels since mid-October.

Copper is sensitive to the growth outlook because of its widespread use in construction and manufacturing. The metal has tracked developments in Europe's debt crisis, as a credit crunch there could filter to the industrial economy and hamper copper demand.

"All of this worry has led to expectations for weaker economic growth and thus less demand for physical commodities," traders with RBC Capital Markets said in a note.

Wednesday's losses wiped out much of the gains the copper market made in late October on hopes that the euro-zone was getting its financial house in order.

The declines eliminated much of last month's upward momentum, a bearish signal for traders who place bets based on patterns in market activity, said Ralph Preston, market analyst with Heritage West Financial.

Futures failed to draw much support as the Chinese government Wednesday said its consumer price index rose 5.5% from a year earlier in October, down from a 6.1% increase in September. Beijing has taken steps during the last year to curb inflation and cool its overheating economy, deploying tight-credit economies that some copper market watchers worried could upset metals demand.

"The Chinese government is likely to be more open in the future to a somewhat more expansionary monetary policy," analysts with Commerzbank said in a note. "This should have a positive impact on demand for metals and therefore prices too."

Copper settlements (ranges include electronic and pit trading):
Nov $3.4390; down 9.30 cents; Range $3.4235-$3.5775
Dec $3.4410; down 9.20 cents; Range $3.4215-$3.6000