Copper extends decline as U.S. budget stalemate continues, China GDP forecast

Copper continued to retreat on Monday as the U.S. partial government shutdown entered a second week, fueling concern that the upcoming talks on raising the nations debt ceiling by October 17 might not be successful. A reduction in the World Banks forecast for the Chinese GDP growth further dampened market sentiment.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December fell by 0.73% to to $3.277 per pound at 9:57 GMT. Prices held in range between days high and low of $3.313 and $3.264 per pound respectively. The industrial metal rose by 0.6% on Friday but settled the week 0.6% lower after adding 3.1% in the preceding two five-day periods.

Copper extended its decline as the U.S. budget talks impasse entered a second week, threatening to impact negatively the U.S. economic growth in the fourth quarter. Most investors expected the shutdown to be short-lived but the protraction fueled speculations that this might lead to a further postponement of Feds bond purchases reduction. The deadlock led many to believe that Republicans and Democrats will have a hard time reaching an agreement on raising the countrys borrowing limit by October 17. The lack of a positive decision would result in an unprecedented debt default, which The Treasury said last week would lead to a recession as bad as the 2008 financial crisis.

Republican House Speaker John Boehner pledged on Sunday not to raise the nation’s borrowing limit without a “serious conversation” about what is driving the debt. Boehner said he doesn’t intend to let the government default, something which he told his fellow members behind closed doors, even if it involves using Democratic votes. He however stated he will not support bills to reopen the government and raise the debt ceiling unless Democrats agree to negotiate about spending cuts.

Copper was further pressured after the World Bank trimmed its growth forecast for East Asias developing nations in 2013 and 2014. Chinas growth projection was also reduced. According to the report, developing East Asia will likely expand by 7.1% in 2013 and 7.2% in 2014, down from Aprils estimate at 7.8% and 7.6% respectively. Chinas economic expansion forecast was revised down to 7.5% for 2013 from Aprils forecast for 8.3%. The Asian countrys 2014 GDP growth is expected to be at 7.7%, down from previously estimated by the World Bank at 8%.

News regarding the strength of the Chinese economy have a strong influence on copper pricing as the country’s vast industrial sector accounts for around 40% of global copper consumption.

The World Bank said in its East Asia and Pacific Economic Update today: “The risks to the global recovery from the uncertainty surrounding the fiscal deadlock in the United States, the impact of the withdrawal of monetary stimulus from the advanced economies, an abrupt slowdown of investment in China, and unrests in the Middle-East remain prominent.”

Copper drew some support by a weaker greenback. The U.S. dollar index, which measures the greenback’s performance against six major counterparts, traded at 80.09 at 9:58 GMT, down 0.19% on the day. The December contract held in range between day’s high of 80.19 and low at 80.01. The U.S. currency gauge rose by 0.5% on Friday but settled the week 0.15% lower after losing 1.6% in the preceding two five-day periods. Dollar-priced raw materials are supported by a weakening of the greenback as it makes them cheaper for foreign currency holders and boosts their appeal as an alternative investment.