Benchmark London copper fell on Friday and was on track for its biggest weekly drop since mid-August, as the US dollar strengthened after the Federal Reserve kept intact its plans to continue raising interest rates.
The Fed has raised its key policy rate three times this year, and the market expects another rate hike in December on the back of a robust US economy, rising inflation and solid jobs growth. While fundamentals have been supporting copper prices, US-China trade tensions have been capping the gains in the metal used in power and construction. Copper hit a 4-1/2-year high in June.
“We continue to see a dislocation between fundamentals and investor sentiment in the copper market. Concerns of weaker demand amid escalating trade tension remain a significant headwind,” ANZ said in a note.
“However, falling inventories, rising premiums and strong growth in Chinese imports suggest demand remains robust. This should provide a strong support level for prices, but until trade tension eases any upside will be limited.”
Three-month copper on the London Metal Exchange had dropped 0.5 per cent to $6,122.5 a tonne by 0311 GMT, poised for its biggest weekly loss since the week ending August 17 with a decline of 2.6 per cent. Copper contract on the Shanghai Futures Exchange fell 0.2 per cent to 49,340 yuan ($7,105.01) a tonne.
The Fed held interest rates steady on Thursday but remained on track to keep gradually tightening the borrowing costs, as it pointed to a healthy economy that was marred only by a dip in the growth of business investment. China, which consumes nearly half the world’s copper, registered a 19 perc ent month-on-month fall in copper imports in October, data showed.
Other base metals on the LME fell at the end of a week that saw the US Democratic Party win control of the House of Representatives, empowering it to challenge President Donald Trump’s tax and trade policies, potentially tempering growth. The dollar gained against its major peers on Friday as the Fed kept interest rates steady but reaffirmed its monetary tightening stance.