LONDON: Copper prices came under pressure on Wednesday as worries about demand in top consumer China were reinforced by weak data from the country’s factories and a firmer dollar.
Benchmark copper on the London Metal Exchange was down 0.4% at $7,829 a tonne at 1605 GMT, extending its losses to 6% since Friday when prices hit a two-month high at $8,318 a tonne. It is on course for its fifth month of consecutive losses.
China’s manufacturing sector 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 Carsten Menke, an analyst at Julius Baer.
“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 US interest rates.
A stronger US 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.
The monthly US employment report due on Friday will be watched for clues about the magnitude of US rate increases and the prospects of recession in the United States.
Elsewhere, aluminium prices fell to six-week lows at $2,339 a tonne on expectations of rising supplies from top producer and consumer China after Sichuan province resumed power supply to industrial users.
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 0.9% at $2,370, zinc fell 0.6% to $3,462, lead ceded 1.4% to $1,959, tin slid 3.2% to $22,895 and nickel was little changed at $21,365 a tonne.
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