Softer dollar lifts copper, but demand outlook weighs

LONDON: Copper prices rose on Tuesday as a softer dollar triggered fund buying, though gains were capped by rising inventories and a worsening demand outlook, particularly in top consumer China.

Benchmark copper on the London Metal Exchange (LME) was up 0.7% at $7,563 a tonne by 1010 GMT in subdued trade owing to Chinese holidays. Prices of the metal viewed as a gauge of economic growth have dropped 30% since scaling a record peak in March.

The dollar slipped after data showing that U.S. manufacturing expanded at its slowest since May 2020 raised the prospect of less aggressive increases to U.S. interest rates.

A weaker U.S. currency makes dollar-priced metals cheaper for holders of other currencies, potentially boosting demand. This relationship is used by funds to generate buy and sell signals from numerical models.

Overall, though, the dollar is near its strongest in 20 years, which will weigh on demand together with weak consumption as economies slow, driving down copper prices.

“A strong dollar is a clear headwind,” said BNP Paribas analyst David Wilson.

Copper pressured by crumbling demand

“Demand in China is a particular headwind, due mainly to the property sector. Chinese authorities have introduced measures to stem the decline in the property sector without much affect.”

China’s property market troubles worsened in August, with home prices, sales and investment all falling as a mortgage boycott and financial strains on builders further undermined confidence in the sector.

Stocks of copper stocks in LME-approved warehouses are up nearly 35% since Sept. 15 at 136,750 tonnes. That is still low by historical standards, but traders expect further deliveries because of the high premium for cash metal over the three-month contract.

Copper breached but failed to hold above the 21-day moving average of $7,650. A sustained break above that will leave copper facing strong resistance at the 50-day moving average, currently sitting at $7,795.

In other metals, aluminium was up 2.5% at $2,276 a tonne, zinc rose 0.7% to $2,980, lead gained 0.8% to $1,876, tin advanced 1.1% to $20,290 and nickel was up 0.7% at $21,415.