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By Eric Onstad
LONDON, Aug 26 (Reuters) – Copper prices pulled back on Friday after touching their highest in nearly two months after the head of the U.S. Federal Reserve doubled down on more interest rate hikes and warned that it would be painful.
Earlier, copper and aluminium prices had shot up on worries over an energy crisis hitting output while supply is tight and inventories low.
Three-month copper CMCU3 on the London Metal Exchange (LME) gained as much as 2.3% to $8,318 a tonne, its highest since June 30, before paring gains to $8,163 by 1600 GMT, a rise of 0.4%.
Copper prices have rebounded 17% since touching 20-month lows on July 15, but are still down 25% from a record peak scaled in March.
Prices retreated after Federal Reserve Chair Jerome Powell warned that the U.S. economy will need tight monetary policy “for some time” before inflation is under control, which means slower growth.
“The recession fears are still there in the background,” said WisdomTree commodity strategist Nitesh Shah.
Prices were earlier boosted by concern about soaring power prices, which have hit energy-intensive aluminium and zinc the most, causing smelter cutbacks and boosted costs for metals producers across the board.
“As long as supply is being destroyed by the energy crisis at a faster rate than demand is being destroyed by hawkish policies of central banks, that could really tighten the fundamentals for base metals,” Shah said.
LME benchmark aluminium CMAL3 held most of its earlier gains, trading 2.8% firmer at a two-week high of $2,502 a tonne.
Weak inventories are also supporting prices, with copper on-warrant stocks – those not earmarked for delivery – hitting their lowest in more than four months this week after sliding 42% this month, LME data shows. MCUSTX-TOTAL
One of China’s biggest copper traders, Xi’an Maike Metal International Group Co, is seeking help from the government and financial institutions to alleviate liquidity issues.
LME zinc CMZN3 added 0.8% to $3,575 a tonne, lead CMPB3 rose 0.6% to $1,987.50 and tin CMSN3 gained 0.6% to $24,460, but nickel CMNI3 shed 0.4% to $21,600.
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($1 = 6.8640 Chinese yuan)
(Reporting by Eric Onstad; Additional reporting by Brijesh Patel in Bengaluru; Editing by Jan Harvey and David Goodman)
((eric.onstad@thomsonreuters.com; +44 20 7542 7093; Twitter https://twitter.com/reutersEricO; Reuters Messaging: eric.onstad.thomsonreuters.com@reuters.net))
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