China lockdowns and US rate expectations hit metals

LONDON: Prices of industrial metals tumbled on Monday as worries about demand in top consumer China spurred a sell-off that was reinforced by expectations of aggressive increases to US interest rates and a soaring dollar.

Benchmark aluminium on the London Metal Exchange (LME) fell to $3,061 a tonne, its lowest since Feb. 4, while copper dropped to $9,756.5 for its lowest since Feb. 9.

Traders are pricing in large US rate increases this year after Federal Reserve Chairman Jerome Powell’s comments on Thursday that more or less backed a half-percentage point tightening at next month’s policy meeting.

“Across metals, what we are getting from China is that it has been really hard to do business for some time, given all the logistical constraints as a result of lockdown,” said CRU analyst Eoin Dinsmore.

“The ability of China’s government to deliver both zero COVID and strong economic growth feels like too much of an ask.” CHINA: Weaker industrial production and fixed-asset investment in China than in the first two months of the year has fuelled concern over metals demand in the country.

Surveys of China’s manufacturing sector this week are expected to show activity contracted in April.

DOLLAR: A rising US currency makes dollar-denominated metals more expensive for holders of other currencies, which would also subdue demand.

TECHNICALS: Support for aluminium comes in at the psychological $3,000 level, while copper support sits at the 200-day moving average, currently at $9,705.

ZINC: The market is keeping a close eye on stocks of zinc in LME-registered warehouses, which at 101,725 tonnes are at their lowest since June 2020.

Cancelled warrants - metal earmarked for delivery - at 66% indicate more zinc is due to leave LME warehouses.

Low availability of zinc in the LME system has created a premium of about $51 a tonne for the cash contract over the three-month contract..

PRICES: Copper was down 3.3% at $9,775 a tonne at 1606 GMT, aluminium fell 4.8% to $3,088, zinc slid 5.7% to $4,181, lead ceded 2.8% to $2,322, tin retreated 5.6% to $39,810 and nickel slipped 1.5% at $32,625.