Copper and aluminium hit one week lows on Thursday, hurt by a stronger dollar and as an anti-pollution plan in China stopped short of imposing blanket production cuts on heavy industry this winter. The dollar rose to a more than one-week high against a currency basket, boosted by the Federal Reserve's outlook for more rate hikes beyond this year and as the euro fell on worries about the Italian budget.
A strong dollar makes dollar-priced metals costly for non-US investors. In China, Beijing ditched blanket production cuts on heavy industry in 28 northern cities in its finalised winter anti-pollution plan, allowing local authorities to adopt measures based on regional emission levels.
Aluminium, the base metal most affected by the winter output curbs in northern China, dropped 1.7 percent in Shanghai and closed 1.7 percent lower on the London Metal Exchange at $2,030 a tonne, having sunk to $2,028. LME copper ended down 1.5 percent at $6,187 a tonne, having hit a low of $6,162.50. The metal has fallen for four consecutive days as investors close out positions ahead of a week-long holiday in China from October 1.
With China copper premiums still at $120 a tonne, their highest since 2015, market commentators have highlighted the growing disconnect between strong physical demand and falling futures prices. Copper is down some 15 percent since hitting a 4-1/2 year high in June on worries over China-US trade tensions and a rising dollar.
"The reaction to the trade war has been overblown. We see copper higher by the end of next year, mostly on tightening supply. Also its role in greener technologies (means) demand is going to hold up," said Caroline Bain, senior commodities economist at Capital Economics.
Copper's robust dynamics clash with futures gloom: Andy Home. "The big disconnect between the shorts looking for another market crash and the reality of what is happening in the physical (copper) market continues to grow," Malcolm Freeman, director of Kingdom Futures, wrote in a note.
Cash zinc traded at a premium of $14 a tonne to the three month price, indicating tight nearby supply. "Refined zinc does remain in deficit this year, despite the ramp up of a number of mines," said ING in a note. US economic growth accelerated in the second quarter at its fastest pace in nearly four years, as previously estimated.
Zinc closed down 1.3 percent at $2,506, tin ended down 0.1 percent at $18,850, while nickel closed down 2 percent at $12,560. Lead bucked the trend, ending up 1.3 percent at $2,010, recovering from a 2-1/2 week low.