Copper Falls to Three-Month Low on Fed Concerns, China Outlook

  • Goldman Sachs is bearish on sector, with zinc as an exception
  • Dollar holds gains, raising cost of metals for some consumers

Copper futures touched the lowest in three months amid renewed concerns that the Federal Reserve will soon boost U.S. interest rates and mounting speculation that demand will slow in China, the world’s biggest metals consumer.

In minutes of their last meeting released Wednesday, Fed policy makers indicated a rate increase in June would be likely if the economy continued to improve, while Richmond Fed President Jeffrey Lacker said Thursday he sees a strong case for a June rate increase. The dollar rose, reducing the appeal of commodities as alternative assets and spurring a selloff in raw materials from crude oil to zinc.

“We continue to get more hawkishly speaking Fed members, the latest being Lacker today making aggressive comments suggesting he would have been ready to hike rates,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “That’s certainly driving the dollar higher but certainly pushing copper lower as well.”

Copper futures for July delivery dropped 0.8 percent to settle at $2.061 a pound on the Comex in New York at 1:15 p.m., after touching $2.038, the lowest since Feb. 16.

Most industrial metals will probably continue to weaken owing to a combination of excess supply and soft demand, Goldman Sachs Group Inc. said in a report.

Chinese stocks traded in Hong Kong fell to the lowest in more than two months amid concern potentially higher U.S. interest rates will spur capital outflows and hurt the earnings outlook for airlines and property developers.

“Metal prices are still under pressure,” Commerzbank AG said in a note. “Among other things, the firm U.S. dollar and concerns about China’s property market are weighing on them.”

In other metals:

  • Goldman raised its price forecasts for zinc as a bullish exception in metals. It increased its six- and 12-month estimates for zinc to $2,100 a ton from $1,700 a ton previously, according to a report dated Thursday.  
  • Tin fell 1.6 percent as Indonesia may cut production of the metal to a 14-year low as weak prices and government curbs hit mining in the world’s largest exporter, according to PT Timah, which accounts for about half the country’s output.
  • Copper, aluminum, nickel, zinc and lead also fell on the LME.
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