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Copper prices rose on Monday but poor demand prospects, particularly in top consumer China, expectations of further U.S. interest rate rises, a stronger dollar and rising inventories weighed on sentiment.
Stocks of copper in LME-registered warehouses at 143,775 tonnes on Friday are up 40% since Sept. 15.
However worries about copper availability in the LME system have resurfaced because of a rise in canceled warrants – metal earmarked for delivery – to 8.4% of total stocks from 4.8% on Thursday .
This, traders say, is behind the higher copper price on the London Metal Exchange (LME), which at 0950 GMT was up 1.4% at $7,561 a tonne.
China has been actively trying to stimulate the economy, but economic data still show growth slowing. Surveys of purchasing managers in the manufacturing sector also show a faster contraction than expected.
“Manufacturing in China is a leading indicator of metal demand,” a metals trader said. “U.S. jobs data on Friday seems to have made the case for higher interest rates.”
The September U.S. employment report showed a gain of more than a quarter of a million jobs, a drop in the unemployment rate, and continued healthy wage growth.
Traders boosted bets on the Federal Reserve hiking benchmark rates by 75 basis points for the fourth consecutive time at its Nov. 1-2 meeting. This has pushed the dollar index up towards the 20-year highs seen last month.
A stronger U.S. currency makes dollar-denominated commodities more expensive for holders of other currencies, which would weigh on demand.
Elsewhere, lead prices were supported by sliding LME stocks, which at 31,275 tonnes are at their lowest since 2007 , and smelter closures in Europe.
Concerns about LME lead stocks were reinforced by large holdings of warrants and cash contracts . This has created a hefty premium for the cash over the three-month contract.
Three-month lead was down 1.1% at $2,048, aluminum fell 0.8% to $2,280, zinc was little changed at $2,991, tin gained 2.7% to $19,950 and nickel ceded 0.2% to $22,445 a tonne.