May 14, 2012 NEW YORK (Dow Jones)--Copper futures sank to the lowest price in four months on Monday, as worries about political upheaval in Europe pushed investors to cut their holdings of the growth sensitive industrial metal on the chance that demand would falter.
The most actively traded copper contract, for July delivery, fell 9.40 cents, or 2.6%, to settle at $3.554 a pound on the Comex division of the New York Mercantile Exchange, the lowest settlement since Jan. 10.
European and U.S. stock markets slumped Monday after Greece's latest attempts to form a coalition government failed. New elections are seen as increasingly likely, causing some to worry that the turmoil there could jeopardize Greece's international financial backstop and perhaps push it out of Europe's monetary union.
"Early weakness persisted all day as equities and commodities felt the weight of a possible Greek exit from the European Union," traders with RBC Capital Markets said in a note. "No matter how you slice it, the global economy looks to have stalled again in the face of slowing Chinese demand and the ripples of a European debacle."
Copper tends to react to such shifts in the economic outlook because of its widespread uses in construction and general manufacturing. A financial crisis in Europe would likely limit the continent's already sluggish appetite for copper, and could further reduce demand world-wide by disrupting the flow of international trade.
Investors moved to the perceived safety of some government debt, pushing the yields on bonds issued by more financially sound European countries to record lows. The dollar climbed, with the ICE US Dollar Index touching the highest level since mid-March, dragging on dollar-denominated copper by making the futures appear more expensive for buyers using other currencies.
Data showing an unexpected contraction in euro-zone industrial production in March, released on Monday, "further fuelled concerns over dwindling demand for base metals from the region," Standard Bank analyst Marc Ground said in a note.
Copper's decline came despite a slight easing in Chinese monetary policy that could be supportive for metals demand. China's central bank over the weekend said it would cut the amount of cash banks must hold in reserve by 0.5 percentage point, effective Friday. Such moves can free up cash and spur lending that could boost activity among copper-heavy industries.
"The reserve ratio cut in China, although signalling a weaker economy, may well be taken as a bullish development as monetary easing generally is," said William Adams, head of research with metals research service FastMarkets.
Copper rose initially in electronic trading during Asian hours, a move traders attributed to the Chinese rate cut, but gave up those gains ahead of the opening of European markets.
Copper settlements (ranges include electronic and pit trading):
May $3.5570; down 9.15 cents; Range $3.5440-$3.6565
Jul $3.5540; down 9.40 cents; Range $3.5425-$3.6745