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Ground shifts under copper's price as Codelco says orders cancelled

Chile’s Codelco, the world’s largest copper producer, said some of its clients in the United States and Europe have asked to cancel orders.

Ivan Alvarado/Reuters/Ivan Alvarado/Reuters

Cracks are starting to show in the resilience of the copper market, as heightened fears of another global recession weigh on demand for the industrial metal, considered a gauge of broad economic activity.

Chile's Codelco, the world's largest copper producer, said some of its clients in the United States and Europe have asked to cancel orders, showing that debt troubles and stagnant economies in those areas are starting to spread through the metals industry.

Weakening demand in the U.S. and Europe is "a major problem for the global economy," and copper is beginning to suffer, said Ross Strachan, a commodities economist at Capital Economics in London.

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Growing concern about demand for copper, alongside rising fears of Greece defaulting on its debt, sent the price of the metal to a one-month low below the $4 (U.S.) a pound mark on Monday.

Copper , used in everything from plumbing and power to automobiles, fell more than 2 per cent to $3.91 a pound on the London Metal Exchange, its lowest level since Aug. 11, before closing at $3.97. Other metals also sank. Gold hit a two-week low at $1,813 an ounce as investors sought to raise cash to stave off losses in other markets.

Codelco's acknowledgment that some of its European and U.S. clients want to cancel orders has fuelled fears of a major pullback in the global economy.

"This reflects the uncertainty in these markets," Rodrigo Toro, vice-president at Codelco, told El Mercurio, an influential Chilean newspaper. The report said Codelco executives fear a repeat of the 2008 collapse in copper demand that saw the company's worst-ever sales campaign.

Codelco, which produces 11 per cent of the world's copper, sells about 20 per cent of its product to Europe and about 9 per cent to North America. China is its largest market at 42 per cent, which was reduced from 47 per cent two years ago as it strived for more geographical diversity.

Codelco officials couldn't be reached for comment on Monday and made no official public statements.

Copper is nicknamed "Dr. Copper" – with a PhD in economics – for its role as an indicator of economic performance. During the last recession, copper dropped to $1.30 a pound in late 2008, and then bounced back to hit a record around $4.60 in February.

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Copper has fallen since, but remained relatively strong – averaging $4.20 a pound in August, even as concerns mounted over the possibility of a double-dip recession.

Demand from China, the world's largest copper consumer, helped to keep the price high alongside production shortages resulting from labour disruptions at some large mines around the world.

Chinese buying on lower prices is said to be keeping prices from plummeting, which was evident in new data released over the weekend showing the country's copper imports rose 11 per cent in August to 340,398 metric tonnes, compared with the month before. However, that was still a 10-per-cent drop from August, 2010, and imports are down 20 per cent year-to-date compared with the same period last year, according to data released over the weekend from China's General Administration of Customs.

Although China's continued rapid growth has kept copper afloat, Mr. Strachan, the commodities economist, warned the country cannot be relied on to always underpin demand.

China is deliberately trying to cool its economy to keep inflation from getting out of control, a move some fear could backfire and result in a dramatic drop in demand for a wide range of metals it uses to build its infrastructure.

With files from Reuters

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

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