Copper drifts as interest rate fears weigh on demand expectations

By Reuters News

By Solomon Cefai

- Copper floated lower on Thursday after the release of hotter-than-expected U.S. economic data the previous day raised fears of higher-for-longer interest rates that could compress demand for the red metal.

Benchmark three-month copper on the London Metal Exchange was down 0.22% at $14,586.5 a metric ton by 0317 GMT. The most-traded copper contract on the Shanghai Futures Exchange fell 0.52% to 110,750 yuan ($16,494.89) a ton.

Interest rate expectations were boosted by economic data that showed US business activity rose to a more than five-year high in September, putting pressure on copper prices, analysts at Chinese broker Galaxy Futures said.

Rate traders are now pricing in a 72% chance that the US Federal Reserve will increase interest rates again in its October meeting, up from 49% a week earlier, according to the CME's Fedwatch tool.

Elsewhere, oil nudged lower after Iran said it was open to diplomacy, providing some reassurance after an Iranian official on Wednesday said that Iran and the U.S. were still far apart in peace talks.

The war has pushed energy prices higher, raising inflation and the spectre of higher-for-longer interest rates which can dampen demand for growth-dependent commodities by stifling economic growth.

Copper was boosted this week by strong China buying ahead of national holidays there, before dollar gains and profit-taking pushed the red metal off levels near its record highs.

The Yangshan copper premium -- a gauge of China's appetite for imported copper -- was flat on Wednesday at $117 a ton. That is 62.5% higher than at the start of the month.

Among LME metals, aluminium lost 0.45%, zinc dipped 0.24%, lead slipped 0.18%, nickel eased 0.16% and tin was little changed, up only 0.04%.

Among SHFE metals, aluminium was little changed, up only 0.02%, zinc ticked 0.13% higher, lead lost 0.82%, nickel lost 0.79% and tin dipped 0.25%.


($1 = 6.7142 Chinese yuan renminbi)

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