Copper recovered from a 3-week low supported by China's demand amid inflation and bond yield concerns

Copper recovered, on Tuesday, from its lowest level in three weeks, after low prices attracted physical buyers in China, the largest consumer of the metal, while increasing inventories on the London Metal Exchange and the presence of a price discount for spot contracts compared to futures contracts indicated an easing of supply tightness in the near term.

The price of standard copper, for three-month delivery, on the London Metal Exchange rose by 0.55 percent to $14,078 per metric ton by 03:30 GMT, after falling to $14,018.50 on Monday.

In contrast, the most traded copper contract on the Shanghai Futures Exchange fell by 0.80 percent to 107,320 yuan ($15,996.42) per ton, but recovered from its lowest level recorded overnight at 106,650 yuan, the lowest level in more than three weeks.

Traders said that the decline in prices encouraged some actual purchases in China, with signs of recovery in demand emerging, following a wave of selling sparked by a Reuters report last week about the White House’s reluctance to impose customs duties on the red metal.

The Yangshan copper premium, an indicator of Chinese demand for imported copper, rose to $100 per ton on Monday, recording its highest level since mid-August.

At the same time, indicators of improved availability of the metal on the stock exchange contributed to alleviating concerns about tight spot supplies.

Copper stocks in warehouses registered with the London Metal Exchange jumped by 3.59 percent, on Friday, to 242,900 tons, while the spot copper contract was traded on the stock exchange at a price discount of $85.75 per ton compared to the three-month contract.

Analysts at ING Bank said in a note that “the rise in inventories and the decrease in the price difference between near-term and futures contracts indicate that the state of severe scarcity in the London Metal Exchange market has begun to subside.”

As for copper stocks on the American COMEX exchange, they remained little changed at 767,599 US tons, equivalent to about 696,400 metric tons.

ING said that copper may remain under pressure in the near term as oversized investment positions decline, although continued restrictions on supplies from mines would continue to support prices.

The strength of the dollar and the prevailing caution ahead of the Federal Reserve's monetary policy decision remained headwinds for base metals.

The dollar hovered near its highest level in two weeks on Tuesday, as markets began to increasingly take the possibility of raising interest rates into account.

On the London Metal Exchange, the price of aluminum rose by 0.51 percent and tin by 0.59 percent, while zinc fell by 0.05 percent, lead fell by 0.13 percent, and nickel fell by 0.02 percent.

As for the Shanghai Futures Exchange, aluminum rose by 0.35 percent, while zinc fell by 1.53 percent, lead fell by 0.91 percent, nickel fell by 0.77 percent, and tin fell by 2.17 percent.

US 10-year Treasury yields jumped to their highest levels since 2007, Tuesday, as investors braced for the possibility that the Federal Reserve's interest rate hike this week could be the start of a series of increases, at a time when inflation pressures remain high.

The pressure extended to global bond markets, amid reports that the Bank of England may stop selling the 20- and 30-year British government bonds it holds, in a move likely aimed at reducing pressure on long-term bonds.

Short-term US bond yields reached their highest levels since mid-2024, after markets priced a 92 percent probability that the Federal Reserve would raise the interest rate by 25 basis points to a range between 3.75 and 4 percent, on Wednesday, with growing chances of it reaching 4.5 percent next year.

“The path of least resistance for us is for yields to continue to rise from here,” said Calvin Tse, head of US economic strategy at BNP Paribas.

He added that it is difficult to determine a specific level of yields, explaining that the 10-year bond yield may continue to rise as markets price a higher path for interest rates, in addition to there being room for a further rise in the “term premium.”

The “term premium” refers to the additional return that investors demand in exchange for lending their money for longer periods, to compensate for the cost of holding long-term investments rather than liquidity, or short-term assets.

This premium has risen steadily since the beginning of the year, driven in part by the need to compensate investors for higher inflation linked to fuel prices, at a time when there are no clear signs of the conflict in the Middle East abating.

The bond market is also facing additional pressure due to growing levels of government debt globally, while investors find more attractive alternatives with the high returns offered by giant technology companies to finance huge investments in artificial intelligence.

Together, these factors pushed the 10-year US bond yield to 5.0266 percent during Asian trading, while the 30-year bond yield reached 5.3858 percent, while the two-year bond yield touched 4.6819 percent.

The 10-year bond yield has risen by about 86 basis points since the beginning of the year, which increases the cost of borrowing for home buyers, companies, and the US government, at a time when the federal budget is still recording a large deficit.

The repercussions of higher yields are not limited to the bond market, as higher yields make bonds more attractive compared to stocks, while raising the discount rate used to evaluate future profits of companies, which puts more pressure on stock valuations.

US Treasury Secretary Scott Besent tried to reduce bond market pressures by increasing the volume of government debt repurchases, but these steps have so far had little success in halting the rise in yields.