RIO Rio Tinto Plc

By Ese Erheriene and Tatyana Shumsky 

Copper prices fell Tuesday on reports of new supply and as investors grew cautious ahead of the Federal Reserve's policy meeting.

The most actively traded copper-futures contract, for March delivery, was recently down 5.3 cents, or 2.5%, at $2.0580 a pound on the Comex division of the New York Mercantile Exchange.

Copper prices have slumped to six-year lows on concerns that global demand for the metal was losing steam at a time when supply from the world's mines continues to grow. Slower economic growth in China, the world's top copper buyer, have sapped the country's appetite for a metal widely used in manufacturing and construction. Meanwhile, global mine production is on track to hit a record this year and in years to come.

On Tuesday, Rio Tinto Ltd. and its partners said they have secured $4.4 billion from 20 lenders to expand its Oyu Tolgoi copper mine in Mongolia. When fully operational, the mine is expected to produce an average of 430,000 metric tons of copper, or roughly 2% of global supply. The company's board still needs to approve the project, with a final decision expected in the first half of 2016.

"Obviously, additional supply in the market is going to depress prices further," said Dave Meger, director of metals trading at High Ridge Futures in Chicago.

Meanwhile, anticipation of an interest-rate decision by the Federal Reserve, due Wednesday afternoon, is also keeping traders from taking large bets on copper. A move to higher rates is expected to boost the dollar, making dollar-denominated metals like copper more expensive for buyers who use other currencies. The policy shift will also reduce the cost of production for mining companies that operate in countries with weaker currencies, spurring supply.

"The market is waiting to see what follows after any initial reaction to a Fed rise," William Adams, head of research at Fastmarkets, said in a note.

Still, many analysts say the broad trends in supply and demand will play a greater role in the copper market than U.S. monetary policy.

"The economic slowdown in China and the role of production cuts (or the lack thereof) matter more to the price, especially over a longer time horizon," said Barclays in a note.

Write to Ese Erheriene at ese.erheriene@wsj.com and Tatyana Shumsky at tatyana.shumsky@wsj.com

(END) Dow Jones Newswires

December 15, 2015 11:19 ET (16:19 GMT)

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