Copper, zinc fall as strong dollar weighs on industrial metals

Copper and zinc fell on Wednesday, as a strong dollar and fears of interest rates staying higher for longer weighed on the wider industrial metals complex, offsetting support from tight supply. Benchmark three-month copper on the London Metal Exchange was down 0.86% at $14,152 a metric ton by 0700 GMT. The most-traded copper contract on the Shanghai Futures Exchange fell 1.35% to 108,040 yuan ($16,069.97) a ton. The dollar held firm after overnight gains, as renewed hostilities in the Middle East pushed oil prices higher, revived inflation concerns and sparked a selloff in the bond market. "Base metals came under pressure as the stronger dollar and U.S. 10-year yield near 4.8% outweighed support from tight physical conditions," analysts from Sucden Financial said in a note. A stronger greenback weighs on dollar-denominated commodities by making them more expensive for buyers using other currencies. Data showing U.S. factory activity slowed in August, amid elevated input prices, also weighed on demand expectations. Copper and zinc have been supported by concerns about supply tightness over recent months, with both recording their best month since January in August. LME zinc fell 0.82% on Wednesday, while SHFE zinc was down 1.46%. Zinc under cancelled warrants, meaning material marked for withdrawal from LME warehouses , hit 30,875 tons on Tuesday, the highest in more than a year. Rising rate-hike expectations also weighed on base metals. Rate traders are pricing in a 70% chance that the U.S. Federal Reserve will raise interest rates at its September meeting, up from 37% a week ago, according to the CME's Fedwatch tool. Hawkish comments from Fed Chair Kevin Warsh last Friday also raised rate-hike expectations. Higher interest rates can weigh on metal demand by dampening economic activity. Among LME metals, aluminium lost 0.35%, lead fell 0.42%, nickel dipped 0.09% and tin declined 1.09%. On the SHFE, aluminium ticked 0.12% higher, lead edged 0.12% higher, nickel lost 0.67% and tin dropped 2.47%.