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Industrial metals prices dipped on Tuesday as traders braced for the combination of Chinese manufacturing data and a Federal Reserve monetary policy statement this week.
The weakness took prices for many industrial metals back towards multi-year lows touched this year.
The falls come amid weaker demand in China, which accounts for more than 40 per cent of global consumption of almost all industrial metals. At the same time, production for many mined commodities is rising as investments made in the past decade’s boom finally pay off.
Chinese manufacturing data, due this week, have consistently underperformed expectations this year.
On the London Metal Exchange, benchmark copper prices for delivery in three months on Tuesday slid 2.1 per cent to $6,732.50 a tonne. In recent months the red metal, viewed by some analysts as a barometer of the global economy because of its widespread use in electrical wiring, has slid to a three-year low of $6,600 a tonne as investors fear that the Chinese-led boom of the last decade has ended.
Other metals prices also slid, weighed down by a stronger dollar as traders positioned themselves ahead of Wednesday’s Federal Open Market Committee announcement on US monetary policy.
Aluminium prices on the LME dropped 1.3 per cent to $1,778.25 a tonne, while nickel was 1.1 per cent lower at $13,565 a tonne.
The price falls are putting pressure on producers of the commodities – particularly aluminium, which for more than a year has been trading close to the cost of production for some producers. Aluminium smelters from Rusal in Russia to Chalco in China have announced production cuts, and Alcoa – once a leader of the US industrial economy – has had its credit rating downgraded to junk.
The nickel market has been similarly weighed down. Stocks of nickel at LME-registered warehouses have soared to record highs amid a surge in production of so-called “nickel pig iron” in China. Nickel inventories last week hit 200,000 tonnes for the first time on record, double the level of a year earlier.
“Nickel is the metal that continues to see selling,” said Walter de Wet, head of commodities research at Standard Bank. He pointed out that the number of nickel contracts on the LME had risen significantly in recent months, suggesting that investors had placed large bets on lower prices – or short positions – for the metal.