Saturday, August 13

Global demand fears, soaring dollar slam copper prices

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LONDON — Copper prices fell on Monday as worries about demand in top consumer China due to new coronavirus restrictions, and elsewhere because of interest rate rises, were reinforced by the soaring dollar.

Benchmark copper on the London Metal Exchange (LME) was down 3% at $7,573 a tonne at 1601 GMT.

Prices of the metal used widely in the power and construction industries have dropped more than 40% since peaking at $10,845 a tonne in March.

“There was a bit of a rally last week, but the market is struggling again,” said Liberum analyst Tom Price.

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“China is trying to stimulate, but at the same time it has a zero-COVID policy. The growth outlook isn’t great.”

Multiple Chinese cities are adopting COVID-19 curbs from business halts to lockdowns to rein in new infections, with the commercial hub of Shanghai bracing for another mass testing campaign.

Strong monthly jobs data from the United States has boosted expectations of another 75-basis-point rate hike when the Federal Reserve meets later this month.

Reinforcing the rate outlook was Kansas City Fed president Esther George, who said with inflation running at a 40-year high, “the case for continuing to remove policy accommodation is clear-cut.”

This has boosted the US currency to 20-year highs against a basket of other currencies, making dollar-priced industrial metals more expensive for consumers and weighing on demand.

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“Funds are selling on the dollar and China,” a metals trader said, adding that the jump in new bank lending in China was a positive for industrial metals. “But (China’s) property sector will be key to future metals demand.”

Clues to industrial metals demand in China will come later this week from data on imports, exports, house prices, urban investment and industrial output.

Highlighting weak copper demand are rising stocks in warehouses monitored by the Shanghai Futures Exchange and LME-approved warehouses .

Elsewhere in the base metals complex, aluminum slid 2.4% to $2,377, zinc ceded 1.6% to $3,048, lead gained 1.4% to $1,945, tin climbed 2.1% to $25,900 and nickel advanced 1.2% to $21,850 a tonne.

“We see the next big move lower in metals as being driven by a recession scenario, most notably in Europe,” analysts at Citi said in a note, adding that the $3,000 a tonne drop in the copper price would reduce scrap supply. (Reporting by Pratima Desai; Additional reporting by Brijesh Patel in Bengaluru; Editing by Jan Harvey, Tomasz Janowski and Shailesh Kuber)