Copper futures slipped to around $6.55 per pound on Monday, bringing a two-day rally to an end, after stronger-than-expected US employment data reinforced expectations that the Federal Reserve will raise interest rates this month, weighing on the demand outlook for industrial metals.

Copper, like other industrial metals, is highly sensitive to the interest rate outlook because higher borrowing costs tend to slow economic activity and dampen demand from key consuming sectors such as construction, manufacturing, and electronics. A firmer US labor market reduces the likelihood of monetary easing and typically applies downward pressure on dollar-priced commodities, which become more expensive for holders of other currencies as the dollar strengthens.

Investors were also weighing rising inflation risks after oil prices extended their recent gains, following an exchange of strikes on ships between the United States and Iran over the weekend. Higher energy costs feed into production and transportation expenses across the metals supply chain, adding to inflationary pressure. Energy is a significant input in copper mining and smelting, where ore grades have been declining at many major operations, requiring more material to be processed per tonne of refined metal.

Despite the pullback, copper remained near record highs, supported by persistent concerns on the supply side. Analysts pointed to a recent export ban in Congo, weaker output from the major producing nations Chile and Peru, and disruptions associated with the El Nino weather phenomenon. The tension between soft demand signals and constrained supply has kept the market finely balanced, with price gains capped by macroeconomic headwinds even as physical availability tightens. Congo, now one of the world's largest copper producers, has become an increasingly important swing factor in global supply in recent years.

Data showed that Chile, the world's top copper producer, recorded its weakest second-quarter output in at least 19 years. The country also lowered its full-year production forecast for a second consecutive quarter and now expects output to decline by 2.6%.

Elsewhere, continued uncertainty over tariffs has encouraged copper shipments into the United States, pushing inventories held on the Comex exchange to record levels. The buildup reflects traders front-running potential trade measures rather than a surge in industrial consumption, and elevated stockpiles could weigh on US prices if tariff policy clarifies and inflows reverse. How the Fed's upcoming decision and the tariff situation evolve are likely to remain the main variables shaping copper's direction in the near term.

Source: Trading Economics via Hellenic Shipping News