Copper falls as higher oil prices stoke inflation fears

Copper fell on Monday as elevated oil prices fuelled inflation concerns, supporting the US dollar and dampening expectations for rate cuts by the Federal Reserve.

The most-active copper contract on the Shanghai Futures Exchange declined 1.28% to 99,310 yuan ($14,390.04) a metric ton, as of 0330 GMT.

The benchmark three-month copper contract on the London Metal Exchange slipped 0.32% to $12,740 a ton.

Brent futures remained above $100 a barrel as the US-Israeli war on Iran stretched beyond its second week, adding to inflation fears with the US consumer spending rising in January.

The Fed is widely expected to hold rates on Wednesday, and markets are increasingly pricing in much lower chances of an easing by June.

“Most industry contacts expect copper price to face downward pressure in the short term driven by the strong USD, delay in Fed rate cut with higher inflation, and weak demand resumption in China after Chinese New Year,” analysts at Citi said in a note.

The US dollar eased slightly but held near a 10-month high on Monday.A stronger dollar makes greenback-denominated commodities less affordable for investors using other currencies.

Citi said the long-term outlook for copper remained bullish, while near-term prices could find support from post-Lunar New Year restocking, especially from the power grid sector.

Aluminium was also under pressure from oil-driven inflation concerns but prices on the Shanghai and London exchanges diverged. SHFE aluminium contract declined 0.51% to 25,155 yuan a ton, and the London benchmark three-month aluminium rose 0.93% to $3,471.

Fears of a supply shortage amid the Middle East war supported prices. Aluminium Bahrain said on Sunday that it was shutting down 19% of its capacity to sustain business continuity after declaring force majeure on March 4 due to the effective closure of the Strait of Hormuz.

India’s Hindalco Industries halted production of an aluminium product, citing force majeure at certain gas suppliers in the Middle East.

Australia’s South 32 said on Monday that it had placed its Mozal aluminium smelter in Mozambique on care and maintenance after failure to secure a sufficient and affordable power supply. Among other SHFE base metals, zinc declined 1.22%, lead lost 1.63%, nickel shed 1.83% and tin slid 3.86%.

On LME, zinc dropped 0.68%, lead slipped 0.68%, and tin dropped 0.76%.

Nickel was little changed.