Uncertain demand prospects undermine copper prices

LONDON: Copper prices slipped on Monday as worries about demand dominated sentiment, though sliding inventories provided some support.

A manufacturing slowdown in top metals consumer China in recent months because of COVID-19 lockdowns has weakened demand for the metal used widely in the power and construction industries.

Economic troubles in the United States and in Europe are also undermining demand.

Benchmark copper on the London Metal Exchange (LME) was down 0.4% at $8,049 a tonne at 1600 GMT.

“Globally, the macro side of things is dampening sentiment. Chinese economic data is weak and confidence is low,” said Geordie Wilkes, analyst at trading firm Sucden Financial.

“Rate cuts in China are having a negative effect because it confirms fears that China’s economy isn’t performing well.” Also weighing on industrial metals are US Federal Reserve’s aggressive interest rate increases. These have fuelled concern over US manufacturing and boosted the dollar, making dollar-priced commodities more expensive for buyers using other currencies.

Traders expect a quiet market ahead Fed Chair Jerome Powell’s speech on Friday at the annual Jackson Hole research conference in Kansas.

Power problems in Europe and China, meanwhile, are expected to reduce metal production and support prices of energy-intensive aluminium and zinc.

“Copper uses a lot less power; it is more resilient,” Sucden’s Wilkes said, adding that current copper prices are too high. “The next target for us is $7,800.” However, support for copper at about $7,990, the 50-day moving average, could slow losses, as could falling stocks in LME-approved warehouses.

Cancelled warrants - metal earmarked for delivery - at 40% of the total 122,575 tonnes also suggest that more copper will leave LME warehouses over coming days. Traders are expecting cancellations to rise further.

Concern about copper supplies in the LME system are behind the rising premium for cash metal over the three-month contract. The premium hit a six-month high of $45.50 a tonne on Monday and compares with a $8 discount a week ago.

Elsewhere, aluminium gained 0.2% to $2,390 a tonne, zinc rose 0.4% to $3,503, lead dropped 1.3% to $2,015, tin slipped 1.1% to $24,525 and nickel climbed 0.4% at $22,355.