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Copper Prices and the Trade War: Off Again, On Again

Copper Prices and the Trade War: Off Again, On Again

What a difference a couple of days makes. On Monday, copper prices tumbled after President Donald Trump announced a 5% additional duty on $550 billion in targeted Chinese goods on Friday. He did that just hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. products.

Then, late Monday and overnight into Tuesday, copper prices rose after sentiment was boosted by signs of progress in resolving the ongoing trade war between the U.S. and China.

The biggest ‘sign’ was President Trump talking about a trade deal with China after positive gestures by Beijing. Any major momentum for copper was thwarted, as has become the norm, by the exact thing that caused the shift in prices – the trade war. The markets as a whole seem to be in a wait-and-see position.

Copper has been hit by the threat of weaker global demand as the trade conflict between the world’s two biggest economies enters its second year, despite fundamentals pointing to a larger shortage of the commodity.

As mentioned last week, the red metal remains stuck in the mid-$2.50 range. Copper opened this morning at $2.53 a pound. Click on the chart below for up-to-the-minute pricing.

“The odds favor an eventual trade deal between the U.S. and China as it is in the best interest of both nations,” says Andrew Hecht, of Seeking Alpha. “I believe a trade deal would launch the price of copper back to the $3 per pound level or higher. However, new tariffs by the U.S. and problems with China if the government reacts to the Hong Kong protests with a Tiananmen Square-like response could trigger risk-off behavior in markets. At the same time, the European economy is a disaster. Prime Minister Johnson has said he is prepared to walk away from the EU with or without an agreement. Brexit and the other issues facing the world have the potential to trigger a risk-off event in markets that would push copper lower.”

‘Other Issues’

Germany’s Wieland, one of the world’s largest copper product makers, said on Monday it would reduce working hours at a German plant starting next month because of the slowing global economy.

Chinese legislators approved a law on Monday that will give local governments’ authority to tax as many as 164 different resources, including fossil fuels, minerals and eventually water, the finance ministry said on Monday. And, just this morning, the finance ministry announced that China is imposing an extra 5% tariff on imports of copper scrap and aluminum scrap from the United States from December 15. China had already levied a 25% tariff on copper scrap from the United States in a previous round of duties and twice hit the U.S. scrap aluminum with a 25% tariff last year.

The tariffs saw China’s copper scrap imports from the United States fall by 80% year-over-year in the first half of 2019 to around 52,022 tons, customs data show, while aluminum scrap imports were down 16% to 229,837 tons.

Further Reading

Frequent tED contributor Andrew Hecht digs below the surface of Glencore, one of the leading commodity-producing companies in the world in his article, Glencore’s Prospects In A Risk-Off Environment.

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