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Copper Prices: The Summer of 2018

Copper Prices: The Summer of 2018

Summer officially started last week, and things are starting to heat up with copper and the markets in general. Thanks to tariffs and potential trade wars, the summer of 2018, it appears, will be anything but “typically a quiet time.”

Copper investors woke up this morning to see London copper edged lower in overseas markets on Tuesday, trading near its weakest level in almost three months, mostly due to escalating trade tensions between the United States and China.

According to Reuters, global stocks extended a sell-off as the mounting trade tensions between the U.S. and other major economies continued to steer investors away from riskier assets.

A government official told Reuters on Sunday that the Treasury was drafting curbs that would block firms with at least 25 percent Chinese ownership from buying U.S. companies with “industrially significant technology.”

U.S. Treasury Secretary Steven Mnuchin on Monday said the investment restrictions would not be specific to China, but would apply “to all countries that are trying to steal our technology.”

Fears of a full-blown trade war have magnified concerns about the outlook for the world’s second-largest economy, following weaker-than-expected growth data for May.

“I believe that the trade issues are weighing heavily on the price of copper and could cause the red metal to fall hard if the world continues to move towards a trade war over coming weeks,” predicts Andrew Hecht, of Seeking Alpha. “A trade war could lead to a global recession, and copper may be the commodity that is the best indicator over the coming weeks.

“If the recent volatility in the copper market leads the red metal to break its pattern of higher lows, it could be a significant event that has far-reaching consequences for commodities prices and markets across all asset classes,” continues Hecht. “While the summer is typically a quiet time in markets, the summer of 2018 could be a highly tense and volatile time in markets as the first round of tariffs take effect on July 6. Copper may probe below the $3 per pound level on the back of tariffs and could challenge its critical support level.”

Strike Threats

Tariffs and possible trade wars are not the only factors impacting the price of copper. Chile’s Codelco, the world’s top copper miner, said late on Friday that workers’ unions at its small Salvador copper division had rejected an early wage deal from the company, pushing off further negotiations until later this year when its contract expires.

This comes on the heels of a strike threat at the end of May and beginning of this month at Escondida, the world’s largest copper-producing property in Chile. The threat of a walkout put caution in the mind of many investors. Remember last year’s work stoppage at Escondida? It caused the loss of approximately 156,000 tons of the red metal and cost BHP around $1 billion in revenues.

Further Reading

Sticking with Seeking Alpha, here is a good article by Boris Mikanikrezai where he advises copper investors to “ignore the noise, focus on the fundamentals.”

The Week Ahead

U.S. inflation data will be in focus this week with the Federal Reserve having already flagged four interest rate hikes this year. The Fed’s preferred inflation measure; the core PCE price index is due on Friday.

The third reading on first quarter U.S. GDP is due the day before and there will also be data on durable goods orders and consumer sentiment.

Here is a look at the significant events likely to affect the markets this week, as compiled by Investing.com.

Tuesday, June 26

The U.S. is to release data on consumer confidence.

Atlanta Fed President Raphael Bostic is due to speak at an event in Alabama.

Wednesday, June 27

New Zealand is to publish data on trade and a report on business confidence.

Bank of England Governor Mark Carney is to hold a press conference about the latest financial stability report in London.

The U.S. is to release data on durable goods orders.

Fed Governor Randal Quarles is to speak at an event in Idaho.

Thursday, June 28

The Reserve Bank of New Zealand is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision.

In the eurozone, Germany is to release preliminary data on inflation.

European Union leaders are to attend the first day of an economic summit in Brussels.

The U.S. is to release revised data on first quarter growth as well as the weekly report on jobless claims.

Atlanta Fed President Raphael Bostic is to speak in Atlanta.

Friday, June 29

The UK is to produce revised data on first quarter growth as well as figures on the current account and net lending.

The euro zone is to release a preliminary estimate of consumer price inflation.

EU leaders are to attend the second day of an economic summit in Brussels.

Canada is to release its monthly report on economic growth as well as data on raw material price inflation. The Bank of Canada is to publish its business outlook survey.

The U.S. is to round up the week with data on personal spending and the Fed’s preferred inflation measure, the core PCE price index, along with data on business activity in the Chicago region and revised data on consumer sentiment.

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Jim Williams

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