Mar 20, 2012 NEW YORK (Dow Jones)--Copper futures settled down 2% as a darkening outlook on Chinese demand and global economic growth compounds pressure from a stronger dollar and weaker U.S. economic data.
The most actively traded contract, for May delivery, settled 7.85 cents, or 2%, lower at $3.8305 a pound on the Comex division of the New York Mercantile Exchange.
U.S. home building fell 1.1% in February from the prior month, missing expectations of a 1.3% increase.
"Traders turned to the U.S. housing market for clues but were disappointed," said Sucden Financial.
U.S. data also showed that building permits, an indicator of future construction activity, rose by 5.1% last month, double the forecast 2.2% increase.
Copper is widely used for electrical wiring and plumbing in residential construction, and slower activity in this economic sector is seen as curtailing demand for the industrial metal.
A stronger dollar also weighed on copper futures. Copper is priced in dollars and seems more expensive to buyers using other currencies when the dollar rallies, sapping demand for the metal among these market participants.
Earlier in the day, copper prices retreated on comments by BHP Billiton Ltd. (BHP) executive Ian Ashby, who warned that China's demand for iron ore will drop "to single digits, if it is not already there."
Separately, a an executive at Rio Tinto's iron-ore division said that Chinese growth was slowing though the company was confident China would see a "soft landing."
China is the world's largest consumer of both iron ore and copper, two raw materials necessary for construction and manufacturing. Demand for both metals tends to decline when such business activity slows down. Investors have been increasingly concerned that Beijing's tight credit policies will trigger a so-called "hard landing" where business activity stalls.
"That's not good for copper consumption either," said Sterling Smith, analyst with Country Hedging.
"We're probably overpriced compared to where demand should be and at this point I wouldn't be surprised if we came back to the $3.40 level," said Smith.
Higher oil prices, which have been trading above $100 a barrel for the past month, are adding to the darkening outlook on global growth.
"Investors are becoming increasingly concerned about the recent spiral in energy prices and whether this could possibly start to dent economic growth, particularly in emerging markets," said Edward Meir, senior commodity analyst with INTL FCStone.
Copper settlements (ranges include electronic and pit trading):
Mar $3.8280; down 7.80 cents; Range $3.8120-$3.8865
May $3.8305; down 7.85 cents; Range $3.8135-$3.9100