Fed Rate Hike Expectations Cause Copper Price to Dip

Copper prices went down by 0.2% last week amid hawkish comments from the chair of the US Federal Reserve. Even though projections from late 2022 and early 2023 suggested that inflation levels would be lower this year, Fed chair Jerome Powell said during a recent interview that the U.S. central bank would most likely raise interest rates higher than expected to combat rising inflation.

Powell noted that the latest economic data indicated that the regulator would have to push benchmark interest rates higher than previously expected to temper inflation levels. Speaking to U.S. lawmakers, Powell said that the Fed would need to take tougher measures to control inflation in the country.

Powell’s hawkish comments outweighed expectations of copper demand from China, one of the biggest consumers of the red metal, causing three-month copper prices at the London Metal Exchange to dip to $8,750 per ton. The Fed chair’s remarks also caused the greenback’s value to soar to a three-month high and reduced demand for dollar-backed commodities among nondollar holders.

The Shanghai Futures Exchange  saw its most traded April copper contract drop by 1% to reach $9,875 (68,870 yuan) per ton. A Shanghai-based futures trader noted that while the reduced prices created buy-in opportunities, the exchange still had an optimistic view of China’s copper demand.

Copper is one of the most widely used metals globally. It has applications in transportation, construction and power generation, in addition to its important role in the transition to clean energy.

As China recovers from the recent lockdowns and steps up its manufacturing efforts, demand for copper is expected to pick up. Coupled with a relatively stable real estate sector, players in the copper market see moderate growth in demand in 2023. China’s ministry of housing revealed last week during an annual parliament meeting that January and February saw the end of 13 months of reductions in the sale of second-hand and new commercial property.

Powell’s remarks also caused several other base metals to stumble.

Aluminum went down by 0.9% to $2,330 a ton, zinc dropped by 1.1% to $2,922, tin reduced by 1.9% to $23,730, and lead went down by 0.6% to trade at $2,075.

At the Shanghai Metals Market, zinc prices declined by 0.7% to 23,260 yuan ($3,341) per ton, nickel dropped by 1.4% to 186,830 yuan ($26,840), aluminum dipped 0.5% to 18,540 yuan ($2,663), and tin went down 1.2% to 197,140 yuan ($28,321).

Major players in the copper space, such as Southern Copper Corporation (NYSE: SCCO), are likely to keep a close eye on the Fed’s actions over the coming months so that any impacts on the commodities market are factored into any plans they make moving forward.

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