Copper Extends Retreat on Faster Inflation and Stronger Dollar
Copper extended its retreat from a record-high close as accelerating US inflation reduced the chance of rate cuts and a stronger dollar make the metal more expensive for many buyers.
(Bloomberg) -- Copper extended its retreat from a record-high close as accelerating US inflation reduced the chance of rate cuts and a stronger dollar make the metal more expensive for many buyers.
The industrial metal is down around 3% from the close of Wednesday. That followed an eight day run of gains that had been driven by mine disruptions and a rally in technology stocks, that had fueled optimism that the artificial intelligence boom would spur demand for copper, which is used in wiring and renewable energy.
A Bloomberg gauge of the dollar jumped 1% this week, while wholesale and consumer inflation readings in the US surged to multiyear highs. The continued effective closure of the Strait of Hormuz is pushing up energy prices, resulting in more hawkish monetary policy around the world.
Quick answers to key questions
Copper has extended its retreat due to accelerating US inflation, which reduces the chance of rate cuts, and a stronger dollar making the metal more expensive for buyers. Higher US Treasury yields also contribute to fading expectations for rate cuts.
Copper prices have been driven by supply disruptions at mines globally and a rally in technology stocks, fueling optimism about demand from the artificial intelligence boom. Sulfur supply shortages and resilient demand for industrial metals also play a role.
A stronger US dollar makes copper more expensive for international buyers, which can lead to decreased demand and put downward pressure on prices. The dollar has jumped recently, contributing to metals falling.
In China, copper prices near record highs are starting to deter demand, with fabricators experiencing a weakening in orders this month. Refined copper output has also decreased due to raw material shortages and stricter scrap supply regulations.
Accelerating US inflation and strong economic data are leading to expectations that the US Federal Reserve may maintain a tighter monetary policy or even consider rate hikes. This reduces the likelihood of rate cuts, which typically strengthens the dollar and weighs on metals like copper and gold.
Metals fell due to the stronger dollar and higher US Treasury yields pointing to fading expectations for rate cuts, said Gao Yin, an analyst at Shuohe Asset Management Co. Copper may fluctuate this quarter without any notable tightening in supply and demand balances, she said.
In China, the world’s biggest metals consumer, copper prices that are near record highs have started to deter demand, with fabricators seeing orders weaken this month.
Copper fell 1.2% to $13,765 a ton on the London Metal Exchange as of 10:47 a.m. in Shanghai, paring its gain this week to about 1.5%. Zinc declined 0.8% to $3,556.50, after spiking to the biggest since 2022 on Thursday as a major smelter in Peru suspended operations due to a fire.
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