Copper drops on World Bank growth expectations

Copper fell more than 1% on Thursday as World Banks downward revised projections for global economic growth outweighed earlier news the Grasberg mine is shutting down after Freeport-McMoRan Copper & Gold Inc. declared force majeure.

On the Comex division of the New York Mercantile Exchange, copper futures for July delivery fell 1.11% for the day and traded at $3.190 a pound at 9:53 GMT. Prices varied between days low at $3.181 and high of $3.243. Copper fell to a five-week low of $3.164 a pound on June 11.

Copper prices rebounded earlier in the day from a one-month low after Freeport-McMoRan Copper & Gold Inc. declared force majeure, a clause used by a supplier when he cant meet obligations due to circumstances beyond his control. The reason for the shut down of the worlds second biggest copper mine are two separate fatal accidents. Grasberg accounts for 2.9% of average daily global output of copper.

David Lennox, an analyst at Fat Prophets in Sydney said for Bloomberg: “It’s a big producer of copper and that would definitely have an impact on supply. The market is scrambling for copper in the event that Grasberg stays closed for a long period of time.”

However, copper prices were pressured back to the red scale after the World Bank cut its global economy growth forecast. According to its report, the global economy will expand 2.2% this year, less than the previous projections of 2.4% in January. Gross Domestic Product in the European Union will contract by 0.6%, while the U.S. and Japan will show improvement, the World Bank said.

Negative news did not pass by the worlds biggest copper consumer, China, that accounts for 40% of global consumption. The World Bank reduced its forecast for China’s economic growth to 7.7%, down from 8.4%. This comes after during the last week of May the IMF cut its economy growth forecast for China to 7.75%, down from 8%. The Organisation for Economic Co-operation and Development also trimmed its expectations to 7.8% from 8%. Chinese leaders made statements in May they will tolerate a slower, but more ecological friendly expansion, boosting concerns for commodities demand.

Investors are looking ahead into todays U.S. key economic data. The country is the worlds second biggest copper consumer. Retail Sales are expected to have risen by 0.4% compared to last month’s 0.1% gain. Retail Sales Less Autos are also projected to have increased by 0.3% after they declined 0.1% in the preceding month. Initial Jobless Claims should stand at 345 000, 1 000 less than April’s 346 000 figure. The Import Price Index should show a 1.4% decrease on annual basis and no change compared to April. Business Inventories, due at 14:00 GMT, which remained unchanged in the preceding period, are expected to mark an increase of 0.3%.