In a significant shift, copper prices dropped below $9,000 per ton on the London Metal Exchange (LME) for the first time in two months, extending a recent downward trend. The fall, which has seen copper decline approximately 7% since last Thursday’s close, underscores the impact of a strengthening US dollar following the recent presidential election. As the dollar surged on bets of extended Federal Reserve (Fed) tightening, concerns about the global demand for metals, especially copper, have intensified.
The recent election of Donald Trump has played a crucial role in driving the dollar rally as investors anticipate a shift in economic policies that could potentially influence the commodity markets. With promises of increased tariffs and tax cuts, Trump’s agenda suggests an inflationary tilt that could reshape financial dynamics across the US and abroad. While these policies bring expectations of heightened inflation, they have also stirred uncertainties, contributing to the cautious sentiment in the metals market.
Trump’s election victory has reinforced expectations that the Fed will maintain its restrictive monetary policies for an extended period. As a result, the dollar has strengthened, rendering dollar-priced commodities like copper more expensive for holders of other currencies. The rising greenback has thus added pressure on commodities, which are already contending with volatile demand patterns, particularly from China.
The Fed’s restrictive stance, driven by inflationary pressures, plays a critical role here. Historically, higher interest rates can curb inflation but also slow down economic growth, which in turn dampens demand for industrial metals. For copper, a metal widely used in construction, electronics, and renewable energy sectors, these economic adjustments are especially impactful.
As analysts weigh the Fed’s likely path forward, there are indications that inflation may persist at elevated levels. This trend was recently highlighted when an index tracking consumer prices in the US recorded its first annualized acceleration since March, fueling expectations of further monetary tightening. Higher interest rates might persist if inflation remains high, potentially keeping copper prices under pressure as demand from key sectors slows.
Copper’s retreat from record highs earlier this year has also been shaped by market perceptions about China’s growth outlook. As the world’s top consumer of copper, accounting for more than half of global demand, China’s economic trajectory has a profound influence on the metal’s prices. Earlier this year, copper prices surged, spurred by Beijing’s hints of pro-growth policies aimed at stabilizing the economy. However, that enthusiasm has cooled in recent months as investors await more definitive signs that China will implement stimulus measures targeted toward infrastructure and other copper-intensive sectors.
As Beijing continues to juggle priorities between stabilizing growth and controlling debt, clear policy announcements have been sparse. This uncertainty has stifled the initial optimism, with market participants now cautious about banking on large-scale infrastructure investments that would boost copper demand. This wait-and-see approach has added to copper’s volatility, with investors closely monitoring upcoming data releases for indicators of economic stability in China.
On Friday, key economic indicators such as China’s industrial output and retail sales data are expected. Economists surveyed by Bloomberg anticipate that both indicators may show an uptick in growth for October compared to September, potentially signaling a rebound in the Chinese economy. Positive readings could offer some support to copper prices by renewing hope for stronger demand. However, the lack of clarity on longer-term infrastructure spending keeps the outlook uncertain.
Copper’s slide has mirrored declines across other major metals, with zinc and aluminum also experiencing downward pressure. Zinc prices dropped by 1.8% on the LME, and aluminum prices fell 0.7%. The drop in metal prices reflects a broader trend in the commodities market, where concerns about demand from China and the effects of a stronger dollar have spurred sell-offs.
The steelmaking sector has not been immune to these shifts. Iron ore futures in Singapore declined by 1.2% to $99.40 per ton, and contracts in Dalian showed similar losses. Steel futures in Shanghai also retreated, as demand uncertainty weighs heavily on the sector. This decline reflects a synchronized slowdown across industrial commodities as China’s economy, the world’s largest metals consumer, grapples with an uneven recovery.
Iron ore, a key input for steel production, has faced its own pressures as global steel demand remains volatile. Steel production cuts in China, intended to meet environmental targets, have also contributed to lower demand for iron ore. Although seasonal construction activities in China typically boost steel demand in the fall, persistent economic uncertainties have tempered the seasonal uptick, translating into weaker prices for iron ore and related commodities.
For traders and investors in metals markets, Trump’s policies add a layer of complexity. The proposed tariff increases could, in theory, boost US manufacturing sectors that are significant consumers of copper and other metals. However, the inflationary pressures that come with these tariffs, combined with anticipated tax cuts, might also lead to higher input costs for US companies, dampening demand from the industrial sector.
Analysts have noted that copper’s recent slide could signal the start of a challenging period for base metals, particularly if inflationary pressures continue to rise. Persistent inflation may compel the Fed to pursue even tighter monetary policies, which could further lift the dollar’s value, squeezing commodity prices in the process. The situation presents a paradox for metals markets: while inflation can traditionally support commodity prices by raising input costs, high interest rates to combat inflation can weaken demand, creating a headwind for growth-sensitive metals like copper.
Copper’s latest decline puts it at a pivotal juncture. As of 10:43 a.m. in Singapore, copper was trading at $8,932 per ton on the LME, continuing its downward trend. The sharp decline highlights the fragility in the market as traders await clearer signals regarding demand growth, particularly from China.
In the short term, much depends on the forthcoming Chinese economic data. A positive report on Friday could renew some investor confidence in China’s recovery, potentially stabilizing copper prices. Yet, without a concrete commitment to increased infrastructure spending, any price recovery may be limited. Likewise, the dollar’s strength remains a critical factor, as further gains in the greenback could exacerbate downward pressure on copper and other dollar-priced commodities.
Moreover, geopolitical uncertainties surrounding US-China relations add to the challenges for commodities traders. Given Trump’s stance on tariffs, the possibility of heightened tensions could lead to disruptions in trade flows, affecting demand for industrial metals. A potential trade standoff would likely impact Chinese manufacturing, a sector that heavily relies on copper, further complicating the outlook for the metal.
Despite the near-term challenges, some analysts remain cautiously optimistic about copper’s long-term prospects, driven by demand from green energy projects. As the world transitions toward renewable energy sources, copper, a key component in electric vehicles (EVs), solar panels, and wind turbines, is expected to see sustained demand growth.
The global push toward decarbonization could bolster copper demand over the coming decade, particularly as countries roll out ambitious green infrastructure plans. For instance, the US Inflation Reduction Act and Europe’s Green Deal both include provisions that could drive significant demand for copper in energy storage and transmission projects. However, this potential is counterbalanced by the immediate economic headwinds, which may limit investment in these sectors in the short term.
Additionally, there are concerns about potential supply shortages as copper mining faces environmental and regulatory challenges. Delays in new mining projects due to stricter environmental regulations could tighten supply in the coming years, potentially supporting prices in the medium to long term. But for now, these factors remain speculative as the market grapples with immediate uncertainties tied to economic and political developments.
