Copper drops to 8-mo low with equities in risk flight

Some investors sold off copper holdings to raise money to meet margin calls in equities and other markets.

With copper generally regarded as an indicator of global growth, the metal often trails moves in equity markets.

"Today, it's outside market conditions. A lot of people think copper is a proxy for global growth. And when they see the S&P 500 and global equity markets selling off, they're taking copper down with them," said Phillip Streible, senior market strategist with MF Global in Chicago.

Three-month copper on the London Metal Exchange closed at $8,595 a tonne, its lowest level since early December, 2010 a 1.5 percent decline from Tuesday's close of $8,730.

Earlier, it rose to a high of $9,005, after late Tuesday's pledge by the US Federal Reserve to keep US interest rates low for at least two years.

Benchmark September copper futures also finished at a low dating back to Dec. 1. It settled down 8.15 cents, or 2.05 percent, at $3.8885 per lb., having risen earlier to $4.0730 per lb. After hours, it traded 6.90 cents, or 1.74 percent, lower at $3.9025 per lb.

The Federal Reserve on Tuesday said the pace of US economic recovery was slower than it had previously thought. The Fed pledged to keep interest rates at record low levels at least until mid-2013 and to explore other "policy tools.

Both copper and stock markets slid initially on the Fed's slower growth reading, then rose on the promise of low interest rates and the possibility of further stimulative measures.

But later, global stocks slumped as risk appetite evaporated on speculation about the strength of French banks holding troubled Greek and Italian debt. Rumors tapped into investors' worst fears of contagion from euro zone debt troubles and led European markets lower.

Copper prices also fell, and the decline accelerated as more investors exited positions taken at much higher levels.

A series of negative or tepid economic readings recently, followed by the Federal Reserve's gloomy reading of the US economic outlook has put many players nerves on edge.

The Commerce Department reported on Wednesday that US wholesale inventories in June posted their smallest rise in seven months as sales rebounded more than expected, pointing to a moderate buildup in unsold goods. But inventories rose to a record level after a 1.7 percent gain in May.

The Federal Reserve on Tuesday said the pace of US economic recovery was slower than it had previously thought and pledged to keep interest rates at record low levels at least until mid-2013 and to explore other "policy tools." with the implication that it would add stimulative measures if necessary.

"The problem is that in the first pullback copper had, after being so strong, many people added to their positions and got a little overweighted. Now they're starting to throw in the towel," Streible added.

The metal used in power and construction, which fell for the sixth consecutive session, has lost nearly 5 percent so far this week, and is down 10 percent in the year-to-date.

CHINESE DATA

Data from China helped limit falls in prices. The country's imports of unwrought copper and semi-finished copper products rose 9.5 percent on the month to a six-month high in July as buyers took advantage of lower prices since the metal rose to a record high $10,190 per tonne in February.

"Most of these imports in July would have been bought during late May, early June when the price was well off the February-April levels," David Thurtell, an analyst at Citigroup, said.

Copyright Reuters, 2011