Copper has hit its lowest point in nearly two years thanks to new signs of a global slowdown and yet another roadblock in trade talks between the U.S. and China.
The red metal has plummeted 16% just since April thanks to a downturn in factory output and warnings that major economies around the globe appear to be heading into recession. Prices fell almost 2% in overnight trading as investors in the U.S. return to work after the Labor Day holiday. Copper opened near $2.53 a pound this morning. Click on the chart below for up-to-the-minute pricing.
In case you missed it, the U.S. launched a new round of tariffs on $112 billion in Chinese goods Saturday. China retaliated with new levies of its own the next day. Now, China has lodged a tariff case against the U.S. at the WTO. The back and forth has pushed the Chinese yuan to its lowest level in more than a decade in offshore trading, nearing 7.2 versus the U.S. dollar. All of this, and still nothing is set on the calendar for the next round of talks between the U.S. and China, who are expected to meet sometime later this month.
A Combination Ripe for a Decline in Price
You can add a stronger dollar to the mix pushing copper and other commodities lower.
President Trump and Secretary of the Treasury Steve Mnuchin have been pretty vocal about the requests for a weaker dollar. They argue that a strong dollar puts the U.S. at a competitive disadvantage when it comes to exports. Additionally, with China devaluing its currency, a strong dollar puts the U.S. in a risky position at the negotiating table.
On Friday President Trump took to Twitter to express his frustration with the Fed.
The Euro is dropping against the Dollar “like crazy,” giving them a big export and manufacturing advantage…and the Fed does NOTHING! Our Dollar is now the strongest in history. Sounds good, doesn’t it? Except to those (manufacturers) that make product for sale outside the U.S.
— Donald J. Trump (@realDonaldTrump) August 30, 2019
“Any argument about the direction of interest rates in the U.S. and around the world these days is not if they will decline, but how far,” says Andrew Hecht of Seeking Alpha. “The trade war between the U.S. and China weighs more on the Chinese than the U.S. economy. However, as China is the most populous nation in the world with 1.4 billion consumers, the impact of a slowdown in the economy ripples around the globe like a tsunami. In the modern economy, when China catches an economic cold, the rest of the world often comes down with the flu.”
Copper News From Around the World
Reuters reports that world top copper producer Codelco saw its profits plunge 74% to $318 million in the first half of 2019 as the state miner confronted falling prices globally and labor strife at its flagship Chuquicamata mine in northern Chile. Outgoing Chief Executive Nelson Pizarro told reporters Codelco had “faced an incredibly challenging second quarter.”
Despite the challenges, Codelco reported production costs had fallen slightly to $1.42 per pound of copper. Pizarro said Codelco estimated the copper price would land between $2.47 and $2.88 in 2019, a wide range he blamed on continuing global trade tensions.
In other news out of Beijing, the average operating rate from copper wire and cable manufacturers in August increased by 2.72% to 91% compared to July. A soft manufacturing PMI for August (coming in at 49.5 compared to 49.7 for July) raised hopes of stimulus from China.
Further Reading
Wind Power Monthly published an article this week predicting new wind power installations until the year 2028 will use more than 5.5 million tons of copper – more than double the amount used in the last ten years. You can check out the article here and read how the concern over keeping up with supply may have some in the industry looking for alternative uses.
Tagged with 2019, copper