Copper drops to 2-week low as surplus looms

LONDON: Copper prices dropped to two-week lows on Tuesday, with sentiment dominated by a stronger dollar and worries about demand in top consumer China, partly fuelled by uncertainty over US tariffs on imports.

Benchmark copper on the London Metal Exchange (LME) was down 0.9% at $8,978.5 a metric ton in official open-outcry trading, having earlier touched $8,964 a ton for its lowest since Dec. 3.

Already lacklustre copper demand in China is expected to come under further pressure if US 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 for a surplus of 300,000 tons.

A stronger US currency also weighed, with dollar-priced metals becoming more expensive for buyers holding other currencies, which subdues demand.

Traders said that commodity trading advisors (CTAs) using this relationship in their numerical models had been selling copper.

The dollar is likely to hold firm next year, with the US Federal Reserve expected to cut interest rates only gradually, starting on Wednesday.

Elsewhere, aluminium touched a one-month low of $2,526 a ton as concern over surpluses surfaced after data showed output in top producer China rose in November. The metal was down 1.3% at $2,533 a ton in official activity.

However, physical market premiums for aluminium in the United States - paid above the LME price - have jumped because America relies on imports that would become more expensive with tariffs.

Premiums are around $480 a ton, up from levels near $420 before the US election.

In other metals, zinc slipped 0.4% to $3,044 a ton, lead was steady at $2,000, tin eased by 0.2% to $29,200 and nickel was down 0.7% at $15,600.