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I’ll See Your Tariff Increase…

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I’ll See Your Tariff Increase…

The price of copper dropped to a 15-week low on Monday after China fired back in the ongoing tariff trade war with the United States. Three-month delivery copper touched $2.709 a pound, down 2.4% from Friday’s settlement. Copper prices rose slightly in overnight trading thanks to bargain buying after hitting that 15-week low.

The red metal opened this morning at $2.71 per pound. Click on the chart below for up-to-the-minute pricing.

On Friday the U.S. hiked tariffs on $200B of Chinese imports with nearly 6,000 products now incurring a 25% levy, up from 10% previously. The U.S. imports about $540 billion worth of goods from China per year, while Beijing lets in $120 billion worth of imports.

China says it will match 25% tariffs on $60 billion of goods imported from the U.S. including precious stones like diamonds, rubies and emeralds, iron ore, and nickel, zinc and titanium.

China and the United States both have the “ability and wisdom” to reach a trade deal that is good for both, China’s top diplomat said, as U.S. President Donald Trump said he thought recent talks in Beijing would be successful.

Reports out this morning say President Trump has not ruled out the prospect of a trade accord being reached within weeks and said he was prepared to meet Chinese President Xi Jinping at the coming G20 summit in Japan next month

“The selloff has been a little overdone so I suspect there’s a bit of opportunistic buying,” Daniel Hynes, a senior commodity strategist at ANZ told Reuters. “But the upside is limited for the moment until there is some sort of clarity around the trade agreement between the U.S. and China.”

“Optimism that a trade agreement was on the horizon in mid-April took the price of the red metal to a high at $3.0010 per pound,” points out frequent tED contributor Andrew Hecht of Seeking Alpha. “As negotiations hit a roadblock and President Trump rolled out new tariffs late last week, the price dropped below $2.80 per pound. At the beginning of this week, the price moved towards the $2.70 level.

“I believe that the current sell-off in the commodities asset class is an excellent opportunity to load up on the products that the world will continue to require,” concludes Hecht.

ICSG Report

The International Copper Study Group (ICSG) met in Lisbon, Portugal last week. Government delegates and industry advisors from most of the world’s leading copper producing and using countries met to discuss key issues affecting the global copper market. In its meeting of the Statistical Committee, the ICSG view of the world balance of refined copper production and use was developed.

The ICSG issued a press release Monday stating the copper market should see a deficit of 189,000 tons this year, widening to 250,000 tons in 2020. That is significantly larger than the deficit of 65,000 tons predicted at the ICSG’s October 2018 meeting. The Group forecasts the higher deficit for 2020 as growth in refined production is expected to lag behind that of usage.

Other key points from the ICSG meeting:

  • After a growth of 2.5% in 2018, world mine production, after adjusting for historical disruption factors, is expected to remain essentially unchanged in 2019 and to grow by 1.9% in 2020
  • World refined production is expected to increase by around 2.8% in 2019 and 1.2% in 2020 respectively
  • World apparent refined usage is expected to increase by around 2% in 2019 and 1.5% in 2020

Other News

Copper inventories in warehouses approved by the London Metal Exchange (LME) on Friday hit 203,750 tons, its lowest since April 25, latest data showed.

Also depressing prices was data showing that vehicle sales in China fell nearly 14.6% in April from last year, the 10th consecutive month of year-on-year declines.

Passenger car sales were harder hit, decreasing 16.6% year on year to 1.54 million units last month, the 11th consecutive decline. Domestic sales for battery-powered and hybrid cars came in at 91,000 units, down 17% from March but up 28.4% compared to the same month in 2018.

Further Reading

Here is an expert from Barron’s article, Copper Prices Might Be Down, but a Longer-term Shortage Is Looming:

Copper remains a “long-term play”—a “direct beneficiary of the move to electrify everything in our lives,” says Frank Holmes, CEO and chief investment officer of U.S. Global Investors. The metal is used in everything from electric vehicles to renewable energy. “Very soon, the industry will be operating in a deficit,” he says. “With that in mind, I would call it a no-brainer buy at $2.65 a pound.”

You can read the entire article here.

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Jim Williams

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