Copper prices on the Shanghai Futures Exchange are expected to dip this week amid an interest rate hike in China and the US election taking place today.
"China's interest rate hike will put pressure on copper and if the US presidential election goes smoothly, the dollar may find support and further drag down the base metal," said Wu Tianmin, a Shanghai Win-Win Investment Management Co Ltd analyst.
On Friday, China's central bank raised its benchmark interest rate for the first time in nine years. The move was designed to step up efforts to curb inflation and ease power and material shortages.
"The interest rate hike is being used as a means for the central government to rein in its runaway investment. A possible economy slowdown will no doubt turn into a shrinking appetite for the base metal," Wu said.
Meanwhile, an interest rate rise will also add to companies' operational costs and result in less demand for copper, Wu said.
"A would-be demand drop will lead to a price decline in the long run."
Wu also viewed the US presidential election as a bullish factor for the currently weak dollar.
If the election proceeds without scandal or a recount which happened in 2000, the greenback may find some support. A smooth election signals a stable US political situation, he noted.
Wu noted Shanghai copper prices may only witness a scant drop since domestic supply was still tight.
Stockpiles on the Shanghai bourse dropped from 12,326 tons to 29,720 tons last week, signalling a stringent supply.
January copper, the most heavily traded contract, closed at 27,100 yuan(US$3,265) a ton yesterday, up 480 yuan. The contract shed 280 yuan to 26,620 yuan last week.