LONDON: Copper prices rose on Monday but Chinese-led demand fears, expectations of further increases to US interest rates, a stronger dollar and rising inventories weighed on sentiment.
Stocks of copper in LME-registered warehouses were at 143,775 tonnes on Friday, up 40% since Sept. 15.
However, worries about copper availability in the LME system have resurfaced because of a rise in cancelled warrants, metal earmarked for delivery, to 8.4% of total stocks from 4.8% on Thursday.
Traders said this is behind higher copper prices on the London Metal Exchange (LME), which was up 1.7% at $7,587 a tonne at 1601 GMT. It is also why the premium for cash metal over the three-month copper contract rose on Monday.
China has been trying to stimulate the economy, but economic data still shows growth slowing. Surveys of purchasing managers in the manufacturing sector also show a faster than expected contraction.
“Manufacturing in China is a leading indicator of metal demand,” one metals trader said. “US jobs data on Friday seems to have made the case for higher interest rates.” The September US employment report showed a gain of more than a quarter of a million jobs, a drop in the unemployment rate and continued healthy wage growth.
Traders boosted bets on the Federal Reserve raising benchmark rates by 75 basis points for a fourth consecutive time at a meeting Nov. 1-2, pushing the dollar index towards last month’s 20-year highs.
A stronger US currency makes dollar-denominated commodities more expensive for holders of other currencies, which would weigh on demand.
Elsewhere, lead prices were supported by sliding LME stocks and smelter closures in Europe. LME stocks have fallen to their lowest since 2007 at 31,275 tonnes.
Concerns about LME lead stocks were reinforced by large holdings of warrants and cash contracts, creating a hefty premium for the cash contract over three-month lead.
Three-month lead was down 4.1% at $1,985 a tonne on profit-taking by traders and funds on long positions.
Aluminium fell 1.8% to $2,257, zinc slipped 0.8% to $2,967, tin gained 3.5% to $20,105 and nickel ceded 0.4% to $22,395.