Copper and zinc led base metals lower on Wednesday as conflict in the Middle East escalated, with U.S. forces striking Iran and Iran firing at American bases across the region, stoking concerns that higher oil prices could fuel inflation.
Benchmark three-month copper on the London Metal Exchange fell 0.3% to $14,226 a metric ton in official open-outcry trading, after touching $14,092, its lowest since Aug. 21.
"All the base metals are softer on the back of higher oil prices caused by the renewed conflict between the U.S. and Iran," said SP Angel analyst John Meyer.
The dollar climbed to a two-week high as Iran and its Arab neighbours were plunged back into war by the biggest exchange of fire between Tehran and Washington since July.
Copper retreated for the second session after touching a seven-month high of $14,441.50 on Tuesday, pressured by the stronger dollar and rising bets that the U.S. Federal Reserve will raise interest rates in September.
"It's increasingly likely that the Fed will raise rates," Meyer said.
A stronger U.S. currency makes dollar-denominated metals more expensive for buyers using other currencies. The prospect of higher borrowing costs also affects sentiment around expected future demand for metals, which is directly connected to the pace of economic growth.
Zinc, tin, nickel, aluminium and lead also weaken
Zinc fell 1.2% to $3,875 in official activity. The metal hit a four-year high of $3,990 on Tuesday on speculative buying and tight inventories outside China.
Daily LME data carried signs of less tightness in supplies, reflecting small inflows of copper and zinc into LME-registered warehouses. The additional stocks helped narrow premiums for cash metal over three-month contracts in both markets.
LME tin lost 0.6% to $54,290, having hit a one-month low of $53,850, while nickel edged down 0.1% at $16,650, paring some losses after touching $16,500, its lowest in seven weeks.
Aluminium fell 0.9% to $3,253 and lead was down 0.8% at $1,904.
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