Copper breaches $10,000 after US producer price data

LONDON: Copper prices breached $10,000 a metric ton on Wednesday as the dollar slipped after U.S. producer prices fell in August, reinforcing expectations the Federal Reserve will cut interest rates next week.

Benchmark copper on the London Metal Exchange was up 0.8% at $9,993 a metric ton at 1433 GMT after earlier touching $10,005. This is the third time this month copper prices have tested the psychological $10,000 level.

U.S. producer prices rose 2.6% on an annual basis in August compared with expectations of a 3.3% gain, suggesting relatively subdued pipeline inflationary pressures.

Industrial metals markets are awaiting China loans data due September 10-15. The main focus will be total social financing numbers used by analysts as a gauge of industrial metals demand, expected to have risen in August from July.

On U.S. interest rates, financial markets are pricing in a quarter-point cut from the Federal Reserve next week, with a small chance of a half-point cut. However, the prospect of a larger cut will depend on U.S. consumer inflation due on Thursday.

Lower Fed rates would typically weigh on the U.S. dollar, which when it falls makes dollar-priced metals cheaper for holders of other currencies which could boost demand.

“(The dollar’s) weakness, at least early in September, will likely provide an element of support,” said Marex analyst Ed Meir. “But should the Fed catch markets off guard, a stronger dollar could usher in a price setback going into the second half of the month.”

Copper edges up on weaker dollar

Supporting copper was a supply disruption in Indonesia where mining at Freeport-McMoRan’s Grasberg operation, one of the world’s largest copper mines, has been temporarily halted.

Focus is also on zinc stocks in LME registered warehouses, which at 50,825 tons have dropped nearly 75% since the middle of April. Cancelled warrants or zinc earmarked for delivery indicate another 15,375 tons are due to leave the LME system.

Worries about the availability of zinc on the LME market have created a premium, or backwardation, with the cash contract over the three-month forward currently trading around $18 a ton.

Three-month zinc was up 0.6% at $2,874 a ton, aluminium eased to $2,621, lead retreated 0.1% to $1,974, tin rose 1.7% to $34,595 and nickel was a touch softer at $15,095.