Copper drifts as interest rate fears weigh on demand expectations

Copper prices slipped on Thursday as worries about higher interest rates weighed on demand expectations, following the release of stronger-than-anticipated US economic data the day before. Benchmark three-month copper on the London Metal Exchange dropped 0.22% to $14,586.5 per metric ton by 0317 GMT, while the Shanghai Futures Exchange's most-traded copper contract fell 0.52% to 110,750 yuan ($16,494.89) per ton.

Analysts at Chinese broker Galaxy Futures attributed the pressure on copper prices to heightened interest rate expectations, citing a surge in US business activity to a five-year high in September. Now, rate traders are pricing in a 72% chance of a further US Federal Reserve interest rate hike during their October meeting, up from 49% a week prior, according to the CME's Fedwatch tool.

Meanwhile, oil prices dipped slightly after Iran indicated a willingness to engage in diplomacy, offering some relief after an Iranian official stated that Iran and the US remained far apart in peace talks. The ongoing conflict has driven up energy prices, inflation, and the looming threat of higher-for-longer interest rates, which could dampen demand for copper and other commodities reliant on economic growth.

Copper benefited from strong Chinese purchases early in the week ahead of national holidays, but dollar gains and profit-taking took the metal off record highs. The Yangshan copper premium, a measure of China's demand for imported copper, remained flat at $117 per ton on Wednesday, up 62.5% from the start of the month. Among other LME metals, aluminum declined 0.45%, zinc slipped 0.24%, lead fell 0.18%, nickel eased 0.16%, and tin stayed unchanged at only 0.04%.

Among SHFE metals, aluminum was flat with a 0.02% increase, zinc rose 0.13%, lead dropped 0.82%, nickel declined 0.79%, and tin fell 0.25%.