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Gee, There’s a Lot at Stake for Copper

Gee, There’s a Lot at Stake for Copper

This weekend’s G20 summit in Japan isn’t the only thing keeping investors at bay when it comes to copper.

Copper prices bounced between gains and losses Monday mainly as global markets wait to see what happens this weekend when Presidents Trump and Xi meet at the summit. While trade talks are huge, they are not the only thing impacting the price of the red metal.

The list includes a weaker dollar, the threat of war in Iran, and an extended strike at a key copper mine in Chile.

Copper Strike Continues

The strike at Chile’s state-owned Codelco’s Chuquicamata copper mine enters its 12th day. Workers at Chuquicamata rejected the company’s latest offer over the weekend, having been on strike since mid-June to demand better healthcare and retirement benefits from the world’s top copper producer. The extended walkout is raising concerns about supply.

“Supply side issues overweighed concerns about the economic backdrop. Copper prices remained supported by the ongoing strike at Codelco’s Chuquicamata copper mine,” said ANZ in a note.

Rising Tensions with Iran

Investors are also keeping an eye on what happens next between the U.S. and Iran.

After nearly issuing a military strike against Iran last week, the Trump administration targeted Iran’s supreme leader with new sanctions on Monday. The sanctions will reportedly deny Iran’s supreme leader, Ayatollah Ali Khamenei, and several other top officials access to financial resources.

Trump warned that his “restraint” from military action might not last.

The Almighty Dollar

The U.S. dollar slipped in early trading Tuesday on the prospects of monetary easing by the Federal Reserve after their meeting last week.

The market is apparently playing a wait-and-see game with the Fed as four Fed policymakers, including Chair Jerome Powell, are scheduled to speak today.

Powell’s comments will be highly watched. Especially since just yesterday, President Trump accused the central bank of behaving like a “stubborn child” in refusing to lower interest rates. The Fed Chair is likely to reiterate or intensify a recent dovish turn on interest rates chance of two more cuts between now and the end of the year. Frequent tED contributor Andrew Hecht took an in-depth look at the dollar.

Trade Tensions are Still Key

“Everyone’s got the G20 meeting in their sights right now, and holding a position ahead of that is what’s dominating the market,” Oliver Nugent, analyst at Citigroup in London told Reuters. “We’ve cautioned that in the event of a trade escalation, the dollar would rally further, oil would be sold off and copper could hit $5,500 or even breach that.”

Copper has become the de facto barometer when it comes to the trade dispute between the U.S. and China. Depending on what happens at this weekend’s summit, copper prices could swing significantly one way or the other.

Recent reports out of China said that President Xi could cancel this weekend’s meeting as rhetoric over trade has increased between Washington and Beijing. However, after a phone call with President Trump last week, it appears that the meeting is still going to happen.

“The bottom line is that no meeting, or a meeting where there is no progress on negotiations, could send the price of copper to a new low under the $2.60 per pound level,” states Andrew Hecht of Seeking Alpha. On the other hand, “Any progress or a trade deal that comes out of a summit would likely light a bullish fuse under the price of the red metal,” adds Hecht. “Therefore, we should know by the end of this month if copper will be below $2.60 or above $2.70 per pound over the coming months.”

Not showing his hand, President Trump said he viewed this week’s meeting with Xi as a chance to see where Beijing stands on the two countries’ trade war and is “comfortable with any outcome” from the talks. Meanwhile, China said both nations should make compromises in trade talks.

Copper opened this morning just above $2.70 a pound. We will keep track of the Fed comments this week and the G20 summit over the weekend and see where the red metal sits this time next week.

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Jim Williams

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