LONDON: Copper prices fell to five-week lows on Thursday as the dollar jumped to near two-year peaks after the U.S. Federal Reserve signalled rates would be cut at a slower pace next year.
Also weighing on industrial metals was the prospect of U.S. President-elect Donald Trump imposing tariffs on imports, which could trigger a trade war and hit economic growth and demand around the world.
Benchmark copper on the London Metal Exchange (LME) was down 1.3% at $8,906 a metric ton at 1124 GMT from an earlier $8,893, the lowest since November 14.
A rising U.S. currency makes dollar-priced metals more expensive for holders of other currencies and subdues demand.
This relationship is used by funds that trade using numerical models. Traders said these funds started selling as the dollar climbed after the Fed said further reductions would depend on reining in stubbornly high inflation.
“It’s all to do with the dollar at the moment,” a metals trader said, adding that the prospects of a trade war between China and the United States on the horizon was also behind the selling of industrial metals.
Copper drops to 2-week low, surpluses on the horizon
Trump has vowed to slap across-the-board tariffs of 60% on China, the world’s largest consumer of industrial metals, which is likely to retaliate. China is also expected to respond with fiscal and monetary stimulus to boost its growth.
“We will see a tug of war in sentiment between Trump’s tariffs and China’s stimulus response,” said Piotr Ortonowski, analyst at Benchmark Mineral Intelligence.
“This policy unpredictability will drag on throughout much of next year, which will likely to keep copper prices more rangebound than in previous years.”
Elsewhere, zinc fell to a one-month low at $2,952.5 a ton as concern about demand from China’s steel producers and its construction sector reinforced the selling pressure created by the dollar. It was last down 0.5% at $2,978.
In other metals, aluminium ceded 0.4% to $2,517, lead slipped 0.9% to $1,963, tin retreated 1.9% to $28,560 and nickel fell 1.2% to $15,315.