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Copper prices see slight decline with weaker base metals market and firmer US dollar 

May 21, 2024

Key points: 

  • Copper prices on the LME dropped 0.8% to $4.90 per pound. 
  • SHFE copper edged down 0.4% to $5.42 per pound. 
  • Firmer US dollar and weak physical demand drag copper prices down. 

On Tuesday, prices of copper (Symbol: COPPER-C) fell from their record high in a broadly weaker base metals market. The three-month copper on the London Metal Exchange (LME) eased 0.8% to $4.90 per pound. Similarly, the most-traded July copper contract on the Shanghai Futures Exchange (SHFE) edged down 0.4% to $5.42 per pound. 

The firmer US dollar played a crucial role in this decline. A strong dollar makes greenback-priced metals like copper more expensive for holders of other currencies, reducing demand. This factor, combined with a lack of robust physical demand, put downward pressure on prices. 

You may also be interested in: Dollar stable as traders await US rate policy updates 

Chart displaying copper prices at 5.0302 with a trend of -0.87%, reflecting a slight decline due to a weaker base metals market and a firmer US dollar. The chart features moving averages (MA) and MACD indicators, highlighting the impact of a strong dollar making greenback-priced metals like copper more expensive for holders of other currencies, which reduces demand. The lack of robust physical demand also contributes to the downward pressure on prices. Image hosted by VT Markets, a forex CFDs brokerage.

Picture: The rally of copper followed by a decline, as observed on the VT Markets app

Copper had previously rallied to a record high of $5.04 per pound on Monday, driven by short covering and speculative bets on higher prices. The LME contract has risen 26% this year, reflecting strong market momentum.  

While copper prices looks strong, physical inventory continues to pile 

Copper demand, especially in China, is not as strong as market prices might suggest. The usual premium that Chinese consumers and traders pay to import copper has fallen to zero and even below it since mid-May, the lowest since at least 2012. 

Adding to the bearish sentiment, copper inventory in SHFE warehouses have been elevated since February. As of Friday, they stood at 290,376 tons, a sharp increase from 33,130 tons at the beginning of the year. This build-up in inventory highlights the gap between market speculation and physical demand. 

Base metals trend the same direction in general 

The broader base metals market mirrored the decline in copper prices. LME aluminium fell 0.8% to $1.18 per pound, nickel dropped 2% to $9.61 per pound, zinc was down 0.4% at $1.41 per pound, lead shed 0.4% to $1.06 per pound, and tin decreased 1.4% to $15.41 per pound.

On the SHFE, aluminium fell 0.7% to $9.50 per pound, tin dropped 2.2% to $124.36 per pound, and lead dipped 0.4% to $8.51 per pound. However, nickel increased 0.5% to $71.10 per pound, and zinc advanced 1.5% to $11.14 per pound. 

Risks and opportunities in copper 

While speculative momentum could drive copper prices higher, they are likely to level off until Chinese demand improves, suggesting a potential consolidation phase. If this happens, opportunities for range trading using support and resistance may present themselves to market participants. 

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