Europe's apparent inability to stop debt contagion from spreading continued to unnerve global markets on Wednesday, keeping investor risk appetite to a minimum as the crisis continued to play out.
A credit-ratings downgrade of two of France's largest banks only added to the pessimistic tone.
"This European debt situation is going to get a hell of a lot worse before it gets any better," warned John Gross, president of J.E. Gross and Co, a consultancy to the metals industry.
"We made a new recent low today in copper. In fact, all of the metals are now negative for the year."
London Metal Exchange (LME) benchmark copper shed $145 to close at $8,635 a tonne, just 1.7 percent away from its 2011 trough at $8,446.25, hit on Aug. 9.
In New York, the key December COMEX contract plunged 7.20 cents or 1.8 percent to settle at $3.8980 per lb, near the bottom end of its $3.8850 to $4.0110 session range.
"The focus is still on Europe, but markets are still very sensitive to the macro picture," analyst Leon Westgate of Standard Bank said.
"The supply side story on copper is still intact and continues to lend support -- as long as the demand side also holds up -- so anything like weaker retail sales will tend to weigh on sentiment towards industrial metals."
Growth in US retail sales stalled in August after a spending battle in Congress crushed consumer sentiment, leaving the world's largest economy perched uncomfortably close to recession.
A Reuters poll released on Wednesday found economists see a nearly one-in-three chance the United States could re-enter recession.
"If in fact we do go into recession, $3.90 (per lb) is way too high," Bart Melek, head commodity strategist with TD Bank Financial Group, said of the COMEX copper price.
"We need a demand catalyst, and we don't have one."
Within this uncertain macro-economic environment, copper prices have been increasingly linked to the swings in the currency markets.
Earlier in the session, the euro's negative reversal against the dollar removed a pillar of support for metals. But losses slowed later in the day as the euro fully recovered amid optimism Greece will remain part of the euro zone and will meet all its obligations.
A stronger dollar makes commodities more expensive for holders of other currencies.
STRIKE STARTS
Uncertainty about supply in light of recent industrial action at top copper mines cushioned copper prices.
Workers at Peru's Cerro Verde mine, which accounts for about 2 percent of global copper output, started an indefinite strike for better pay and benefits on Wednesday, a union leader said.
Also workers at Freeport's Grasberg mine in Indonesia have given the company a deadline of midnight on Wednesday to come up with a fresh pay rise offer, or they will proceed with a month-long strike.
"The Grasberg mine in Indonesia and the Cerro Verde mine in Peru, two of the world's largest copper mines, are both affected by strikes starting today. The supply situation on the global copper market ... should therefore intensify, which should support the price of copper in the medium term," Commerzbank analysts said in a note.
In further supply side developments, Xstrata Copper plans to invest $1.47 billion in two copper mines in Peru, with the goal of increasing production in the country by 60 percent in 2012, according to a company presentation obtained by Reuters on Wednesday.
Copyright Reuters, 2011