Copper had its biggest drop for two years on Tuesday with the price hitting its lowest level in two months as inventories rose and the dollar firmed on expectations of U.S tax reform. Benchmark copper closed 4.2 percent lower at $6,542 per tonne, after touching its lowest level since Oct. 5 at $6,533.50. The metal, which is widely used in power systems and construction, fell by the most in one session since July 2015.
"Because of the strength of the dollar this week we are seeing metal prices which are denominated in dollars coming under pressure," FOREX.com analyst Fawad Razaqzada said. A trader said there was also market talk that demand for copper was set to weaken due to plentiful stocks, adding that the next support is seen at $6,440-$6,480.
The dollar index, which measures the greenback against a basket of major currencies, firmed for a second straight session on continued optimism surrounding US tax reform. A stronger greenback makes dollar-denominated assets such as copper more expensive for holders of other currencies.
Placing further pressure on copper were inflows of stocks at LME-registered warehouses. Headline stocks in copper rose 10,650 tonnes to 192,550 tonnes. The Caixin/Markit services purchasing managers' index (PMI) rose to 51.9 in November, up from 51.2 in October and the highest reading since August.
Razaqzada said the services data had less impact on the prices than Friday's manufacturing data, which came in below expectations. "Whilst China property concerns remain, steady global growth expectations coupled with on-going mine supply disruptions likely to lend support on dips with $6,550-$6,650 the bottom of a new range," Alastair Munro at broker Marex Spectron said in a note.
BMI Research said it expects industrial metal prices in 2018 to consolidate due to a marked slowdown in China's metals consumption growth. Henan Mingtai Aluminum, one of China's biggest aluminium sheet makers, said it expected production and sales to keep growing in 2018 despite the launch of US trade probes into imports of the product from China.
Benchmark LME aluminium fell 0.8 percent to $2,052 per tonne. Zinc fell 2 percent to $3,112 per tonne, lead ended 0.3 percent lower to $2,500, tin ended unchanged at $19,525 while nickel slumped to its lowest level in nearly two months at $10,865 a tonne, down 4.6 percent.
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