Copper hits 3-month lows, focus on demand and US rates

Copper prices dropped to their lowest in more than three months on Thursday as the market fretted about weak demand and expectations of US interest rate hikes that could bolster the dollar.

Benchmark copper on the London Metal Exchange was down 1.2% at $13,645 a metric ton by 1200 GMT, but up from an earlier $13,629 — its weakest since July 29.

A higher US currency makes dollar-priced metals more expensive for holders of other currencies, which could subdue demand. This relationship is used by funds that trade using buy and sell signals from numerical models.

US Federal Reserve officials have expressed concern about stubborn inflation and left open the possibility of a 50-basis-point increase at the central bank's meeting December 8-9.

"The inflation print for the US shows that it's still a problem there, so the metal markets is repositioning around that and it's dragging down the copper price," said Panmure Liberum analyst Tom Price.

Price said overall industrial demand for copper was soft and that the drop in share prices of technology stocks was part of the reason. "Every time AI takes a hit, copper demand and prices come under pressure too."

On the technical front, support for copper is around $13,615 where the 200-day moving average currently sits.

Elsewhere, the premium or backwardation for the cash aluminium contract over the three-month forward climbed to 36-year highs above $175 a ton, partly due to historically low stocks in LME-registered warehouses.

Aluminium stocks in LME warehouses at 226,350 tons have dropped nearly 56% since January, while in warehouses monitored by the Shanghai Futures Exchange they fell 31% last week to 132,605 tons, their lowest since December.

The maturity curve for aluminium prices on ShFE is also backwardated. The November contract was trading at a 355 yuan premium to the December contract.

Three-month aluminium was down 0.2% at $3,061 a ton, zinc fell 0.7% to $3,728, lead slipped 0.2% to $1,879, tin was little changed at $46,500 and nickel gained 0.7% to $16,320.