Copper and zinc prices declined significantly on Wednesday as a stronger U.S. dollar and rising expectations for Federal Reserve interest rate increases outweighed support from tight physical supply conditions in the industrial metals complex. Benchmark three-month copper on the London Metal Exchange fell 0.86% to $14,152 per metric tonne by 0700 GMT on September 2, 2026. The Shanghai Futures Exchange's most traded copper contract declined 1.35% to 108.040 yuan, equivalent to $16,069.97 per ton.
LME zinc dropped 0.82% on the same day, while Shanghai Futures Exchange zinc fell 1.46%. Analysts from Sucden Financial identified the key headwinds affecting base metals in a report, stating that "base metals were under pressure due to the strong dollar and U.S. 10 year yield around 4.8%, which outweighed the support of tight physical conditions." The stronger greenback makes commodities priced in U.S. dollars more expensive for international buyers using other currencies, directly reducing demand from non-dollar regions.
Macroeconomic factors compounded metal weakness. Data showed that U.S. manufacturing activity slowed in August due to high input prices, dampening demand expectations across the industrial complex. Additionally, renewed hostilities in the Middle East, with U.S. forces striking Iranian targets and Iranian forces firing at American bases throughout the region, pushed oil prices higher and revived inflation concerns that triggered a bond market selloff.
Rate hike expectations escalated sharply during the period. According to CME's FedWatch tool, rate traders priced in a 70% probability that the U.S. Federal Reserve would raise interest rates during its September meeting, up from 37% just one week earlier.
These elevated rate expectations were largely attributable to hawkish remarks made by Federal Reserve Chair Kevin Warsh on Friday. Higher interest rates negatively impact metal demand through reduced economic activity and increased borrowing costs. Despite the price declines, zinc showed signs of supply stress.
LME zinc cash-to-three-month spreads remained in backwardation, signaling tight supply conditions. However, the spread narrowed to $139 per ton from $231.75 per ton the previous week. Additionally, zinc warrants marked for withdrawal reached 30,875 tonnes, the highest level in over a year, indicating material was being drawn from LME storage.
Copper and zinc prices had benefited from supply tightness in recent months, with both metals recording their best monthly performance in August since January. However, this support proved insufficient to overcome the combined headwinds of dollar strength and rate hike expectations. Other base metals also weakened.
Nickel dipped 0.09%, tin fell 1.09%, and aluminium, lead, nickel and tin all declined on the Shanghai Futures Exchange. The broader industrial metals complex reflected the same pressure affecting copper and zinc, with currency and monetary policy considerations dominating physical supply factors. Source: Reuters, as reported by energynews.oedigital.com
Source: energynews.oedigital.com