Poor China demand prospects pressure copper

LONDON: Copper prices came under pressure on Tuesday as worries about demand in top consumer China were reinforced by the firmer dollar.

Benchmark copper on the London Metal Exchange fell 1.3% to $7,765 a tonne, extending its losses to 6% since Friday when prices hit a two-month high at $8,318 a tonne.

China’s factory activity contracted for the second straight month in August as COVID-19 infections, the worst heatwave in decades and an embattled property sector weighed on production, suggesting the economy is struggling to sustain momentum.

“We don’t see a big push in terms of China fostering metals demand. We expect the government in China to work towards stabilisation, we don’t expect a big stimulus,” said Julius Baer analyst Carsten Menke.

“For property, it’s about avoiding a crash. On the infrastructure side there is a realisation that it will be hard to move the needle because the base is already so big.”

Also weighing on industrial metals is the dollar trading near two-decade highs against other major currencies after hawkish Federal Reserve comments bolstered expectations of further aggressive hikes in U.S. interest rates.

A higher U.S. currency makes dollar-priced metals more expensive for holders of other currencies, which could subdue demand. This relationship is used by funds to generate buy and sell signals from numerical models.

Copper slides after Fed’s growth warning triggers sell-off

The monthly U.S. employment report due on Friday will be watched for clues to the magnitude of U.S. interest rate rises and the prospects of recession in the United States.

Elsewhere, aluminium prices fell to six-week lows at $2,355 a tonne on expectations of rising supplies from top producer and consumer China after Sichuan province resumed power supply to industrial users amid signs that a prolonged heatwave and drought were easing.

However, traders say the power crisis in Europe could result in further curtailments in the production of energy-heavy aluminium, which would provide support.

Aluminium was down 1.3% at $2,360, zinc fell 0.9% to $3,449, lead ceded 1.5% to $1,957, tin dropped 3.4% to $22,855 and nickel gained 0.8% to $21,545 a tonne.