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Copper Report: That Was Quick

Copper Report: That Was Quick

What a whirlwind copper has been on over the past few days – and, that’s saying something considering the usual roller coaster ride the red metal takes most weeks.

Positive vibes from this past weekend’s talks between the U.S. and China sent copper prices to a six-week high on Monday. Overseas trading to start Tuesday saw those prices come back to reality after some not-so-pretty economic data was released.

Benchmark copper on the London Metal Exchange was down 0.5% overnight, dipping to the lowest it has been since June 24. This, just a day after copper hit a six-week high after the United States and China agreed to restart trade talks over the weekend after President Donald Trump offered concessions including no new tariffs and an easing of restrictions on technology firm Huawei.

“Our long-term assessment about the trade talks has not changed,” said INTL FCStone analyst Edward Meir in a note. “We still think the two sides will ultimately fail to reach a deal given that Washington is demanding fundamental changes to China’s economy that Beijing will not agree to, namely reducing or eliminating state subsidies and downsizing government-sponsored state-owned enterprises.”

“The truce on the trade front between the United States and China helped copper and base metals, but the deluge of data highlighting manufacturing weakness has damaged confidence,” a metals trader told Reuters.

Just the Facts

China’s factory activity unexpectedly shrank in June as domestic and export demand faltered, a private sector business survey showed on Monday. Manufacturing activity also shrank in most Asian and European countries in June.

U.S. manufacturing activity slowed to near a three-year low in June, the third straight month of declines.

Focus Shifts to the EU

With the trade situation with China still on the stove, it appears Washington is turning up the heat on the EU.

According to a Seeking Alpha report this morning, the U.S. Trade Representative (USTR) has released a list of $4B of additional goods out of the EU that may be targeted with retaliatory tariffs as part of a long-running battle at the WTO over subsidies given to Airbus and Boeing.

The list, which includes Italian cheese, Scotch whiskey, chemicals, and metals, adds to products valued at $21B that the USTR had identified in April as facing possible tariffs.

Shifting Into Q3 and Beyond

Copper prices fell about 7% in the second quarter from the same period a year earlier, mainly due to concerns over the U.S.–China trade standoff and the prospect of slowing global economies eroding investor demand.

“Many issues face the industrial commodities sector of the raw material market that could cause lots of price volatility in Q3 and the second half of 2019,” states Andrew Hecht of Seeking Alpha. “The dollar, interest rates, and most of all, trade with China will determine the path of least resistance of prices. The most significant variable continues to be the trade issue as we head into the coming three-month period. I continue to believe that the U.S. and China will compromise on a trade deal. China needs one for economic reasons, and President Trump needs a political victory going into the 2020 election season.”

We will keep an eye on the market to see which way it goes as we turn the halfway point on 2019.

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Jim Williams

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