Copper prices tumbled to three-month lows on Tuesday as a stronger dollar reinforced the negative sentiment fuelled by deteriorating demand prospects from top consumer China. A higher US currency makes dollar-denominated commodities such as copper more expensive for non US firms. Worries about slow industrial activity in China and other parts of the world including the United States also hit industrial metals.
Benchmark zinc hit $2,084 a tonne and lead $1,797 a tonne, both at their lowest since April 1. Nickel slid to a two-week low of $12,705 a tonne. Copper touched a session low of $5,749 a tonne. The metal used in power and construction ended down more than one percent at $5,750 from Monday's close at $5,825.
China's government and central banks have eased fiscal and monetary policy to stimulate economic activity, but data suggests growth is still slowing. One key indicator analysts are fretting about is China's fixed asset investment (FAI), which in May grew at its slowest pace in 15 years. "The Chinese data, particularly the FAI, has been really poor. There's just more and more evidence of a bottleneck between the lending numbers and the spending numbers," said Wiktor Bielski, analyst at VTB Capital.
"The dollar is holding at higher levels, it's clearly a headwind. Markets are expecting the (US Federal Reserve) to send a strong signal this week for a September rate rise, which will be good for the dollar." The US central bank starts a two-day meeting on Tuesday. Also a sign of weak demand is the discount for LME cash contracts over the three-month future. The discount or contango for copper at about $30 a tonne, is the highest since 2013.
Aluminium closed at $1,707 a tonne from $1,717 on Monday when it dipped to $1,693, its lowest since February 2014. "We estimate that aluminium positioning is most significant in terms of net short positioning (relative to market size), followed by tin, nickel, copper and lead," Standard Chartered said in a note. "Zinc remains the metal with LME investor positioning closest to neutral." Tin traded at $14,700 from $14,800 on Monday, zinc at $2,092 from $2,105, lead at $1,798 from $1,822.5 and nickel at $12,750 from $12,950.