Copper Falls As Traders Pick Dollar On EU Worry

Dec 13, 2011 NEW YORK (Dow Jones)--Copper futures wilted under the pressure of a stronger dollar on Tuesday, as investors remained skeptical about Europe's progress toward combating its debt crisis after Germany's chancellor reiterated her opposition to an enhanced bailout fund.

The most actively traded contract, for March delivery, fell 2.25 cents, or 0.7%, to settle at $3.4415 a pound on the Comex division of the New York Mercantile Exchange, the lowest ending price in two weeks.

German Chancellor Angela Merkel rejected the idea of boosting the firepower of the euro zone's permanent bailout fund, knocking European equities markets lower and helping to send the euro to its lowest level against the dollar in 11 months. A rising dollar can pressure dollar-denominated copper by making futures appear more expensive for buyers using other currencies.

"It's really more of the disappointment we saw yesterday," said Dave Meger, head of metals trading with Vision Financial Markets. "At the end of the day, I think people were looking for more" support for Europe's financial system. "We're in a risk-off trade once again."

Copper slid by almost 3% on Monday as investors bet that the demand outlook for raw materials remained grim despite last week's pact to strengthen budgetary discipline in the European Union.

Copper is sensitive to the economic outlook because of its widespread uses in construction and manufacturing. Prices have tracked sentiment toward the euro-zone debt crisis in recent weeks, as a credit freeze there could slam global industrial demand.

European markets were initially calmer on Tuesday after successful debt auctions in Spain and Greece and a better-than-expected reading on German economic expectations, before Merkel's comments helped erase that optimism.

"For all the tinkering the Europeans are doing with respect to their debt loads and deficit strategies, hardly any attention is being paid to perusing policies that could potentially jumpstart growth," said Edward Meir, an analyst with INTL FCStone, said in a note.

Freeport-McMoRan Copper & Gold Inc. (FCX) and striking workers at the company's Indonesia unit were likely to reach an agreement as soon as Thursday to end the three-month strike there, a union spokesman said.

The strike halted shipments from the Grasberg mine, one of the world's top copper mines, beginning in late October, but copper traders have largely looked past the supply disruption and focused on demand prospects in the euro zone and China.

"Just as the strike had limited impact in driving prices higher when it was on, its resolution is not exerting much downside pressure either," Meir said.

Analysts say that even if an agreement is reached as expected, copper shipments may take time to ramp back up because of damage to the mine's infrastructure incurred during the strike.

Copper settlements (ranges include electronic and pit trading):
Dec $3.4325; down 2.20 cents; Range $3.4325-$3.4760