Aluminium prices deepened losses on Tuesday as investors worried that renewed lockdowns in top consumer China and a potential global recession could slash demand for metals.
Three-month aluminium on the London Metal Exchange fell 0.7% to $2,610 a tonne in official open-outcry trading after dropping 1.9% on Monday and hitting its lowest since Dec. 15.
"There's a general lack of risk appetite right now and metals are in the firing line because of the recessionary risks to demand," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. "There's also some nervous trading ahead of tomorrow's FOMC meeting."
Eroding inflation data and fast-changing views in financial markets have opened the door to a larger-than-expected three-quarter-percentage point interest rate increase when Federal Reserve officials meet this week.
Meanwhile, concern about demand in top metals consumer China has been rekindled due to fresh COVID-19 lockdowns. Authorities in China's capital warned on Tuesday that a COVID-19 surge in cases linked to a 24-hour bar was critical and the city of 22 million was in a "race against time" to get to grips with its most serious outbreak since the pandemic began. Losses in some metals, however, were cushioned by falling inventory levels and tight supply, Hansen added.
"Inventory levels held by exchanges in London and Shanghai are still on the weak side so how do you square that with prices coming down in anticipation of lower demand? That's the conundrum the market has to deal with." LME copper dipped 0.2% to $9,274 a tonne.
Offering some support, the dollar index eased, consolidating gains near a 20-year peak, making greenback-denominated metals less expensive for buyers using other currencies.
Argentina said on Monday it would introduce a new optional tax regime for copper producers that could potentially lower export duties in an effort to jumpstart national production.
Ghana is on a roadshow to find a strategic partner to rebuild state-owned Volta Aluminium Co's aluminium smelter.
LME zinc eased 0.1% to $3,611 a tonne, lead slipped 0.3% to $2,092, nickel fell 1.7% to a three-month low of $25,500 and tin tumbled 5.8% to $31,000, the weakest in nearly a year.
(Reporting by Eric Onstad; Additional reporting by Brijesh Patel in Bengaluru; Editing by Sherry Jacob-Phillips, Kirsten Donovan)