Copper steadied on Thursday, extending a minor gain from the previous session, despite the Federal Reserve's recent interest rate decision. Futures on the London Metal Exchange (LME) saw a slight increase, with prices still considerably lower than the record highs reached last week. The record high was driven by expectations of a supply crunch due to potential U.S. tariffs. However, rising inventories and loosening spreads are now influencing trader sentiment, leading to a more stable market.
The market's relatively calm response comes after a period of volatility. Earlier in the week, copper prices fell as hotter-than-expected U.S. inflation data increased bets on a Federal Reserve rate hike. The probability of a rate hike at the September 15-16 FOMC meeting had jumped to 85-88%, according to market-implied pricing. This hawkish sentiment typically strengthens the dollar, making dollar-denominated commodities like copper more expensive for international buyers and increasing borrowing costs for key copper-consuming sectors like construction and manufacturing.
Despite the Fed's tightening, copper held its ground after briefly sliding towards $14,000 per ton. New inflows into exchange-monitored warehouses signaled a loosening of supply. Three-month LME contracts are now in contango, sitting $86.75 a ton above spot prices, indicating ample near-term availability. This contrasts with earlier concerns about a supply squeeze, partly due to traders redirecting metal to the U.S. ahead of anticipated tariffs, which have not yet materialized. China's industrial output in August also beat forecasts, though consumer spending and investment lagged, complicating stimulus decisions for the world's largest metals buyer.
