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More Tariffs Threatened – The Copper View From a Distributor

More Tariffs Threatened – The Copper View From a Distributor

Copper prices dropped in overseas trading Tuesday after President Donald Trump warned there could be new tariffs on Chinese goods in the absence of a trade agreement with China.

President Trump told FOX News Channel’s “The Ingraham Angle” that he thinks there will be “a great deal” with China on trade, but warned that he has billions of dollars worth of new tariffs ready to go if a deal is not possible.

Bloomberg News reported on Monday that Washington was preparing to announce tariffs on an additional $257 billion of Chinese goods by early December if talks next month with Chinese President Xi Jinping fail.

Copper slipped 0.3 percent to $6,140 a ton, and opens at just under $2.71 a pound this morning. Click on the chart below for a live look at the price of copper.

Copper and Tariffs from a Distributor’s View

tED magazine talked with Greg Lampert, President at OmniCable, about the price of copper. More specifically, what the tariff situation between the U.S. and China is doing to OmniCable and the industry as a whole.

“It is affecting the industry,” Lampert states. “It is making it more costly for companies to import product. And when those tariffs have gone into place, there are sometimes various delay tactics, whether a supplier from Asia has fully passed it along or is short term absorbing a portion of it. But there is definitely an effect on overall prices and reducing the amount of supply available in the U.S.

“For us, it is only affecting our business positively because we are committed to domestic manufacturing. We are not importers. We are buying from the top domestic suppliers, so for us it is not having a direct effect on our costs, other than what price increases have gone into place. But overall for us it’s been slightly favorable. The only downside is, it has definitely tightened up product supply from the U.S. manufacturers … but not too much because we inventory so much product that we buy ahead, so for the most part, it’s been a net positive for us.”

We asked Greg what a solution between the U.S. and China would do to OmniCable or to the industry?

“It depends on what the plan is,” Lampert replied. “I would say, it depends on if there is no tariff that remains, meaning the U.S. and China get along and they wipe out any tariffs on wire and cable, I think things will get back to where they were five months ago. That kind of supply and demand and price environment. If there’s a tariff that remains and it is reduced from the current level, then you will find a different kind of equilibrium. It really just depends on what getting along means.

“I don’t foresee the tariffs ending any time near-term, meaning in the next six months or so. Beyond that, who knows? But, I don’t think it will end quickly.”

Lampert says it has been business as usual for OmniCable despite the tariff situation.

“We have not changed our buying practices because we are fully domestic,” Lampert said. “I certainly think some importers have tried to change their practice, tried to partner and tried to start to build relationships with domestic suppliers that they weren’t working with prior to the tariffs. It will be interesting to see what those domestic suppliers do, because those importers were notorious for really hurting their market, so this ought to be interesting.”

Omni Cable has over $70 million in wire and cable inventory. Lampert says they are constantly buying and invest heavily in inventory to support their customers. What inventory they have really just depends on the lead times from the factory. He said in some cases it could be as short as a week, and in other cases it could be as long as 10 or 12 weeks.

Most investors want the product they are stocking to keep trending up, but as Lampert says, that’s not really the case when it comes to copper.

“Steady is actually best,” Lampert calmly stated. “The volatility causes issues on both ends. When it’s falling it is worse because you bought inventory for some period of time and then if it falls rapidly, and then the expectation in the market is that prices will fall. Sure a rising copper market is great, but only short term as everyone knows it will eventually fall and create issues on the downside.”

A special thank you to Greg Lampert for taking time to talk with us.

The Week Ahead

Investors will be focusing on the monthly U.S. jobs report, due on Friday, which is expected to remain in territory consistent with a strengthening labor market.

Other top-tier U.S. economic data due this week includes ADP private sector payrolls, CB consumer confidence, car sales, trade figures, construction spending and the ISM survey on manufacturing sector activity.

The Fed remains on course to raise interest rates again in December, despite a recent tightening in financial market conditions brought about by a stock market sell-off and a rise in U.S. Treasury yields.

Looking at the week ahead, Investing.com has compiled a list of significant events likely to affect the markets.

Tuesday, October 30

The euro zone is to publish preliminary data GDP.

Germany is to release data on consumer price inflation.

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

Wednesday, October 31

China is to release reports on manufacturing and service sector activity.

The Bank of Japan is to announce its benchmark interest rate and publish what will be a closely watched rate statement. The announcement is to be followed by a press conference.

The euro zone is to release preliminary data on consumer price inflation.

The U.S. is to publish the ADP nonfarm payrolls report.

Thursday, November 1

The Bank of England is to announce its latest monetary policy decision and Governor Mark Carney is to hold a press conference.

In the U.S., the Institute of Supply Management is to publish its manufacturing index.

Friday, November 2

The U.S. is to round up the week with the nonfarm payrolls report for October.

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Jim Williams

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