METALS-Copper drops to two-month low on buoyant dollar, recession fears

LONDON, Sept 28 (Reuters) - Copper prices fell to a more than two-month low on Wednesday, battered by a stronger dollar and deepening worries over a likely recession and sliding metals demand.

Three-month copper on the London Metal Exchange CMCU3 had lost 0.9% to $7,288 a tonne by 1015 GMT, the weakest since July 21 and down 33% from a record peak scaled in March.

The most-traded October copper contract on the Shanghai Futures Exchange SCFcv1 dipped 0.5% to 60,830 yuan ($8,414.60) a tonne.

"The strong dollar is hurting absolutely everything that is priced in dollar terms," said Nitesh Shah, commodity strategist at WisdomTree.

The dollar hit a fresh two-decade high against a basket of currencies =USD, making greenback-priced metals more expensive for buyers holding other currencies. FRX/

Investors brushed aside the fact that inventory levels of most base metals were very low in historical terms while many smelters were cutting back production, such as Norwegian aluminium producer Norsk Hydro NHY.OL move on Tuesday to cut output at two local plants.

"There's tightness in the market, but at the moment, what's driving the price are fears about a significant contraction in demand. And that's rooted in the central banks' rhetoric of killing inflation regardless of the consequences," Shah said.

Goldman Sachs slashed price forecasts for nickel this week, saying it expected European nickel demand to tumble around 30% during the rest of 2022 and into 2023.

LME three month nickel CMNI3 was the biggest loser, shedding 1.9% to $21,450 a tonne.

The discount on LME cash nickel to the three month contract CMNI0-3 climbed to $167 a tonne on Monday, the highest on a closing basis since Nov. 2008, which one trader attributed to expectations of more supply moving into LME warehouses.

Among other metals, LME aluminium CMAL3 dipped 0.2% to $2,109 a tonne, zinc CMZN3 eased 0.9% to $2,835, tin CMSN3 fell 0.6% to $20,550, but lead CMPB3 advanced 1.2% to $1,770.