Copper holds as interest rate fears linger

By Solomon Cefai

SINGAPORE, Sept 24 (Reuters) - Copper was little changed on Thursday as hotter-than-expected US economic data the previous day revived concerns of higher-for-longer interest rates, offsetting positive sentiment from data showing a sharp drop in copper inventories in China.

Benchmark three-month copper on the London Metal Exchange was up 0.09% at $14,631 a metric ton by 0735 GMT.

Meanwhile, the most-traded copper contract on the Shanghai Futures Exchange closed 0.57% lower at 110,700 yuan ($16,494.08) a ton, ending a week shortened by the Mid-Autumn Festival holiday that started on Friday up by 1.14%.

U.S. business activity hit a more than five-year high in September, lifting rate expectations and weighing on copper, Galaxy Futures analysts said.

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

Meanwhile, copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 15.9% from last Friday to 47,147 tons, the exchange's weekly stock report showed on Thursday.

"Reports suggest inventories are low and fabricators still need material ahead of Golden Week, although stockpiling is cooling," Neil Welsh, Head of Metals at Britannia Global Markets said in a note.

Elsewhere, oil nudged lower after Iran said it was open to diplomacy, providing some reassurance after an Iranian official on Wednesday said Iran and the US 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.

LME aluminium edged down 0.03%, zinc gained 0.46%, lead dipped 0.08%, nickel rose 0.36% and tin advanced 0.51%.

SHFE aluminium closed 0.10% lower, zinc gained 0.36%, lead lost 0.79%, nickel fell 0.66% and tin eased 0.13%.

($1 = 6.7115 Chinese yuan renminbi)