LONDON: Copper prices dropped to two-week lows on Tuesday as worries about demand in top consumer China, partly fuelled by uncertainty about U.S. tariffs on imports, and a stronger dollar weighed on sentiment.
Benchmark copper on the London Metal Exchange (LME) was down 0.9% at $8,978 a metric ton at 1035 GMT, having earlier touched $8,977 a ton, the lowest since Dec. 3.
Already lacklustre copper demand in China is expected to come under further pressure if U.S. President-elect Donald Trump follows through with his threat to impose punitive tariffs on imports, which could trigger a trade war and subdue growth.
“There are a lot of unknowns. The biggest one is what Trump does, particularly in terms of tariffs. The second one is what China does in terms of stimulus in response to that,” said Macquarie analyst Alice Fox.
“Our base case is the copper market will be oversupplied next year. There will be new mine supply coming through.”
Macquarie expects mine supplies to rise 5.4% to nearly 24 million tons next year and a surplus of 300,000 tons.
A higher U.S. currency makes dollar-priced metals more expensive for holders of other currencies, which subdues demand.
Traders said commodity trading advisors (CTAs) using this relationship in their numerical models had been selling copper.
The dollar is likely to hold firm next year as the market expects the Federal Reserve to cut U.S. rates only very gradually. It is expected to cut interest rates on Wednesday.
Elsewhere, aluminium touched a one-month low of $2,528 a ton as concern about surpluses surfaced after data showed output in top producer China rose in November. It was last down 1.3% at $2,533.
However, physical market premiums for aluminium in the U.S., paid above the LME price, have jumped as the U.S. relies on imports, which would become more expensive with tariffs.
They are around $480 a ton from levels near $420 before the U.S. election.
In other metals, zinc slipped 0.9% to $3,029, lead retreated 0.2% to $1,997, tin fell 0.5% to $29,100 and nickel ceded 0.8% to $15,580.
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