Copper Drops On Global Economic Outlook Worries

Nov 21, 2011 NEW YORK (Dow Jones)--Copper locked in losses Monday as concerns about stalled U.S. debt talks and Europe's ongoing battle to stem its debt crisis weighed on markets ahead of a U.S. holiday.

The most actively traded contract, for December delivery, fell 9.60 cents, or 2.9%, to settle at $3.3030 a pound on the Comex division of the New York Mercantile Exchange.

Thinly traded November delivery copper fell 10.30 cents, or 3%, to settle at $3.2990 a pound.

Copper prices faltered early in the day on reports that U.S. deficit reduction talks were deadlocked ahead of a Wednesday deadline. Without a road map for cutting more than $1.2 trillion from the U.S. budget deficit over the next 10 years, the U.S. is likely to face further credit-rating downgrades, which can hamper the economic recovery by raising the cost of debt.

Investors who had in the past purchased copper as a bet on the economic recovery or as a way to benefit from China's robust demand for the industrial metal, which is widely used in manufacturing and construction, are now preferring to stay on the sidelines and stick to cash.

"You need to get a bit of clarity before you can be sure about investing your money for a long period of time, so people are just staying back and taking a breather and not getting too involved" in the copper market, said Leon Westgate, a metals analyst with Standard Bank.

Indeed, Friday's Commodity Futures Trading Commission data showed that speculative investors like hedge funds are net short in Comex copper futures and options for the ninth consecutive week -- a strategy that profits from declining prices.

By contrast, Goldman Sachs presented a positive outlook on the copper market saying it expects prices to rally as global copper mine production is set to tighten in the first half of 2012. Copper prices will rise to $9,000 a metric ton ($4.08/lb) over the next six months and to $9,500 a metric ton ($4.31/lb) over the coming 12 months, the bank said, citing a lower output at key mines and new production that won't come on line until the second half of 2012. Moreover, the market "could be even tighter" if the strike at Freeport McMoran Copper & Gold Inc.'s (FCX) Grasberg mine in Indonesia remains unresolved, the bank said.

Copper settlements (ranges include electronic and pit trading):
Nov $3.2990; down 10.30 cents; Range $3.2915-$3.3690
Dec $3.3030; down 9.90 cents; Range $3.2720-$3.4095