Copper slumped to a three-month low on Thursday, weighed down by a stronger dollar, the potential for a US interest rate increase next month and worries about lacklustre demand. Prices gained more downside impetus after US weekly jobless claims showed the biggest drop since February, offering another sign that the economy is gathering momentum.
The data helped to send the dollar index to a seven-week high, making dollar-priced commodities less competitive for buyers using other currencies. The jobs numbers reinforced the message from Wednesday's release of the minutes of the Federal Reserve's April policy meeting, in which officials indicated that the US economy could be ready for another interest rate increase in June.
Three-month copper on the London Metal Exchange ended 0.7 percent down at $4,580 a tonne, having touched its lowest since February 17 at $4,540 and extending losses from the previous session. Copper has been flirting with a key technical level of $4,580-$4,600 over the past few days, sliding below it during the day but often pushing back above by the end of trading.
"There's a real danger we could see fresh cycle lows in the second half of this year," said Robin Bhar, head of metals research at Societe Generale in London. Bhar was referring to copper challenging the 6-1/2 year low of $4,318 touched in January. "There's still subdued demand, not much restocking despite second-quarter peak seasonal demand, and there is also abundant supply across the board. The final negative factor is the strengthening of the dollar and a possibility that the Fed may move sooner than thought."
Demand weakness was indicated by an increase in LME copper inventories, which rose by 1,750 tonnes on Thursday and are up 10 percent since the end of March. LME tin inventories are set to rise further, broker Triland said in a note, suggesting ample supply despite low production by top exporter Indonesia. "We heard of more deliveries in the weeks ahead, thus we could expect higher LME stocks near 7,000 tonnes."
LME tin stocks have nearly doubled since late February, climbing to a six-month peak at 6,615 tonnes. Three-month tin shed 1.6 percent to $16,510 from an earlier $16,490, the lowest since April 7. Aluminium fell 0.4 percent to $1,545 and zinc dropped 1.5 percent to $1,860. Lead was down 1 percent at $1,686, having touched a 3-1/2 month low of $1,675, and nickel lost 0.9 percent to $8,555 after hitting $8,455, its weakest since April 8.