Copper down, headed for biggest monthly drop in 19 mths

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SHANGHAI: Copper fell on Wednesday, heading for its biggest monthly loss in 19 months, after weak data from the United States, the euro zone and Japan fanned fears of a global economic slowdown.

But a strike threat at the Grasberg copper mine in Indonesia and news of lower output from Chile in July may limit losses.

Three-month copper on the London Metal Exchange edged down 0.2 percent to $9,138.25 a tonne by 0406 GMT, snapping a five-day winning streak, after rising 0.9 percent in the previous session. It is on track to post a monthly fall of 7 percent, its largest since January 2010.

The most-active November copper contract on the Shanghai Futures Exchange inched down 0.2 percent to 68,110 yuan per tonne by its midday close, snapping a four-day winning streak, after rising 0.9 percent in the previous session.

It is headed for a monthly fall of 6.3 percent, also its biggest drop since January 2010.

Analysts said copper prices dropped off slightly on fears of a global economic slowdown, but were still supported by fundamentals.

"Sentiments here have been dampened by a fall in Shanghai equities, which is a barometer of how Chinese investors think of future economic prospects. Also US and European investors seem unwilling to increase net length in copper lately," said CIFCO Futures analyst Zhou Jie.

US consumer confidence plunged in August to its lowest since the 2007-2009 recession, after a bruising battle over the US budget slammed stock prices and pushed the nation to the brink of default.

Euro zone economic sentiment fell more than expected in August, underlining prospects for slower economic growth and expectations that the European Central Bank may cut inflation forecasts and cease raising interest rates.

In Japan, industrial output rose a weaker-than-expected 0.6 percent in July, government data showed on Wednesday, in a sign that recovery from the March earthquake is losing steam as a surging yen and slowing global demand cloud the outlook.

"Copper went up quite a bit in London overnight, and not on a lot of convincing reasons. I think what we are seeing now is a technical correction," said a Shanghai-based trader.

"In China, investors have been buying on dips for over a week now, which lends support to prices," he added.

"Copper price movements are small as things are not that dire with lots of factors still supporting prices," Zhou noted.

The US Federal Reserve could embark on a third round of quantitative easing depending on upcoming economic data but should first confirm that inflation has eased, a senior Fed official said in Japan's Asahi newspaper on Wednesday.

President Barack Obama said on Tuesday there was a range of policy options available that could create up to a million new US jobs, in remarks ahead of a major economic speech he will deliver next week.

The US central bank in early August discussed a range of unusual tools it could use to help the economy, with some officials pressing for bold new steps to shore up a flagging recovery, minutes revealed.

Copper prices were also underpinned by a drop in output from Chile and the threat of a strike at the world's third largest mine, Indonesia's Grasberg.

Chile, which provides around a third of the world's copper, produced 373,498 tonnes of the metal in July, down 18 percent from the same month last year, the government said on Tuesday.

Workers at Freeport-McMoRan Copper & Gold's Grasberg mine in Indonesia plan to stage a strike after talks with the company failed to resolve a pay dispute, in a move that could tighten global copper supplies and lift prices.