Copper witnesses largest one day drop in three weeks

Sovereign debt problems in Europe and US hammer red metal prices

Red metal prices at Comex witnessed the largest one day drop in three weeks on Monday, 21 November 2011. Prices dropped to a month low on mounting fears that heavy debt loads in Europe and the United States will hinder global economic growth, and with it, demand for industrial metals.

Copper for December delivery ended lower by 10 cents (2.9%) at $3.3 a pound at Comex on Monday. Last week, copper shed 1.7%.



Red metal prices for three-month-delivery at LME shed $215 (2.8%) to $7,252 a metric ton on Monday.

For the month of October, copper ended with a gain of 15%. In the third quarter, copper tumbled 26%, the most since 2008. The metal touched a 14-month low of $2.994 on 3 October, 2011.

US stocks slumped on Monday ahead of an expected announcement from the congressional super committee that it failed to agree on reducing the federal deficit. The apparent stalemate in Washington added to market jitters over Europe's debt crisis, prompting investors to flee equities and flock to perceived safe havens including the U.S. dollar and government bonds.

A warning from China's vice premier on the global economy added further pressure to copper, whose reliance on China's near 40% intake of the world's demand.

Moody's Investors Service repeated in a weekly credit update on Monday that rising debt costs and uncertain economic outlook pose a danger to France's AAA rating.

In the currency market on Monday, the Dollar Index, which weighs the strength of dollar against basket of six other currencies traded higher by 0.3%.

Among the day's economic data expected at Wall Street, sales of existing homes in US rose 1.4% in October to a 4.97 million-unit pace from a slightly downward revision to 4.90 million-unit pace in September. Contract cancellations jumped to 33%.

Investors took some comfort from data showing copper stocks, seen as a signal of strengthening demand, continued their fourth-quarter slide in LME warehouses. As per latest data, stocks fell by 2,275 tonnes to total 395,975 tonnes, their lowest since early February.

Also offering support to prices is the strike at Freeport-McMoRan Copper & Gold Inc's Grasberg mine in Indonesia, where production has been halted for nearly two months.

Among other traded metals at LME on Monday, lead in London fell 3.2% to $1,992.5 a ton and nickel closed higher by 0.7% at $17,775 a ton. Aluminum closed lower by 2% at $2,067 a ton, and zinc closed lower by 2.5% at $1,915 a ton.

At the MCX, copper prices for November delivery ended lower by Rs 5 (1.3%) at Rs 383.75/Kg. Prices rose to a high of Rs 387.6/Kg and fell to a low of Rs 380/Kg.