Copper Caps Record Quarterly Plunge in N.Y. on Demand Outlook

By Millie Munshi

Sept. 30 (Bloomberg) -- Copper tumbled to the worst quarterly decline on record, falling to an 18-month low on concern that a spreading financial crisis will stifle global growth and slash metals demand.

Lawmakers in the U.S. House of Representatives yesterday rejected a $700 billion financial rescue plan aimed at loosening clogged credit markets. The vote eroded investor confidence and borrowing costs jumped. Copper fell 26 percent in the third quarter, the biggest drop since at least 1989, as bank failures and a credit crunch cooled global growth.

``The markets are trying to figure out what all this means for the economy and the outlook for demand,'' said Ron Goodis, a futures-trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Copper will probably continue to fall down this treacherous path because of the economic crisis.''

Copper futures for December delivery sank 2.75 cents, or 0.9 percent, to $2.879 a pound on the Comex division of the New York Mercantile Exchange. Earlier, the metal touched $2.765, the lowest since March 12, 2007.

This quarter's drop is the first for the metal this year. Copper declined 15 percent in September, the largest monthly decline since June 1996. The losses follow the metal's 28 percent surge in the first half of the year, with the price touching a record $4.2605 a pound on May 5.

``Everything for copper is pointing down right now,'' Goodis said. ``Sentiment in this market has really swung around. We saw a great performance earlier, and now it's made a huge run down. Copper has really shown that there is no support left for it in this market.''

Housing Slump

Copper has tumbled as the U.S. housing slump has deepened. Builders are the biggest users of the metal, accounting for about 46 percent of demand, according to the Copper Development Association. A housing slump and the collapse of the U.S. subprime mortgage market led to the financial crisis that has engulfed credit markets.

Home prices in 20 U.S. cities dropped 16 percent in July, the fastest pace on record, signaling the worst housing decline in a generation hadn't found a bottom even before the failure of banks and the government takeover of mortgage financiers Freddie Mac and Fannie Mae this month, an industry report showed today.

``The outlook for base metals does not look promising going forward,'' Edward Meir, an analyst at MF Global in Darien, Connecticut, said today in a report. A global ``synchronized slowdown'' will not be ``a conducive backdrop for commodities to thrive in, and we suspect that we could see much lower prices.''

London Trading

On the London Metal Exchange, copper for delivery in three months dropped $80, or 1.2 percent, to $6,360 a metric ton ($2.88 a pound).

Copper will average $5,000 a ton in the first quarter of next year and betting against the metal is one of the lowest- risk trades in commodities right now, Barclays Capital said.

Demand for the metal including in China, the world's largest consumer, is ``very soft,'' London-based Barclays analyst Kevin Norrish said today in a report.

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.