Copper prices experienced a notable decline on Tuesday, primarily driven by an oversupply of copper and apprehensions surrounding the upcoming U.S. Federal Reserve meeting. Traders expressed worry that persistent high-interest rates might dampen the demand for metals.
The three-month copper rates on the London Metal Exchange (LME) recorded a 0.8% drop, settling at $8,294 per metric ton by 1605 GMT on Tuesday, following a 0.6% decrease in the previous session.
Concerns of Oversupply and Fed’s Monetary Policy Weigh on Copper Prices
Stocks of copper listed with the London Metal Exchange (LME) witnessed a significant surge in just two months, reaching their highest levels since May 2022.
This rise in inventory during the summer holidays in the northern hemisphere. Although a regular occurrence, is presently more pronounced due to the struggling manufacturing sector in Europe and the United States.
While the U.S. Federal Reserve is unlikely to raise interest rates in the forthcoming meeting. Financial markets remain on edge, fearing prolonged high rates to tackle inflation.
Nitesh Shah, a commodity strategist at WisdomTree, noted expectations of prolonged high rates due to the continuing economic strength.
Although inflation is on the decline, the situation remains somewhat unstable, particularly with energy prices resurging and uncertainties in China’s economy affecting metal prices.
Additionally, the declining LME time-spreads suggest an increasing likelihood of more copper heading to exchange warehouses.
The surplus copper in the market dampens hopes of a robust economic recovery in China, the largest consumer of copper.