Copper, zinc fall as strong dollar weighs on industrial metals

Copper and zinc prices dropped on Wednesday as a strong dollar and concerns over higher interest rates impacted the industrial metals sector. The London Metal Exchange's three-month copper benchmark fell 0.99% to $14,133.5 per metric ton, while the Shanghai Futures Exchange's most-traded copper contract fell 1.65% to 107,710 yuan ($16,022.55) per ton.

The dollar remained strong, following overnight gains, as Middle East hostilities escalated, driving oil prices up and reigniting inflation worries. A more potent greenback makes dollar-denominated commodities pricier for buyers using other currencies, affecting demand expectations for these metals. Slowdowns in US factory activity, driven by higher input prices, also contributed to reduced demand forecasts.

Copper and zinc had been buoyed by worries about supply shortages over the past months, both experiencing their highest monthly gains since January in August. LME-registered copper stocks rose on Tuesday, while zinc warrant cancellations reached 30,875 tons, the highest level in over a year. LME zinc declined 1.43% on Wednesday, while SHFE zinc slipped 1.8%.

Tight supply concerns were evident in LME zinc's cash-to-three-month spread, which remained backwardated at $139.35 per ton, a significant drop from last Thursday's $231.75. Rising expectations of rate hikes from the US Federal Reserve also hurt base metals, with a 68% probability of a September rate increase, up from 40% a week earlier, according to the CME's Fedwatch tool.

Among LME metals, aluminum fell 0.49%, lead declined 0.42%, nickel slipped 0.27%, and tin dropped 0.81%. Among SHFE metals, aluminum decreased 0.19%, lead rose 0.15%, nickel fell 1.05%, and tin dropped 2.39%.