Copper dips but interest rate hopes support

8th August 2022 By: Reuters

LONDON - Copper prices eased on Monday but were supported by rising imports of the industrial metal by top consumer China and by hopes that interest rates will peak soon after rapid increases aimed at curbing inflation.

Benchmark copper CMCU3 on the London Metal Exchange (LME) traded down 0.2% at $7 850 a tonne in official rings. Prices of the metal used as a gauge of economic health have climbed 13% since July 15, when they touched the lowest since November 2020 at $6 955.

"The bounce in metal prices and more broadly other risk assets comes from hopes that perhaps inflation has peaked or is possibly past its peak," said Duncan Hobbs, research director at Concord Resources.

"By association it may mean central banks led by the Fed are at or even past the peak of hawkishness. Whether those hopes are justified is debatable; the latest US jobs report was strong."

US job growth accelerated unexpectedly in July, lifting employment above its pre-pandemic level and pouring cold water on fears the economy was in recession. Read full story

Clues to US policy will come on Wednesday with the release of consumer prices data.

Part of the reason for base metal price rises in recent weeks is funds and traders buying back short positions as the dollar retreated from historical highs against other major currencies. 

A lower US currency makes dollar-priced metals cheaper for holders of other currencies, which could boost demand. 

China's copper imports rose to 463 693 t in July, up 9.3% from a year earlier as the sharp drop in prices triggered buying against a backdrop of falling domestic inventories. 

Copper stocks in warehouses monitored by the Shanghai Futures Exchange CU-STX-SGH are down 79% since March at 34 768 tonnes, the lowest level since January 28.

However, worries about copper inventories in LME-registered warehouses have receded and can be seen in the discount for the cash contract over three-month copper CMCU0-3 at about $7 a tonne.

LME copper stocks MCUSTX-TOTAL are up 13% since late June at 127 850 tonnes while cancelled warrants - metal earmarked for delivery - at 27% compare with levels of about 50% in May.

Elsewhere, aluminium CMAL3 was up 0.7% at $2,432 a tonne, zinc CMZN3 was down 2% at $3 419, lead CMPB3 rose 2.4% to $2 120, tin CMSN3 slid 6% to $23 000 and nickel CMNI3 was down 1.9% at $21 800.