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Trade War Fuels Copper Prices

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Trade War Fuels Copper Prices

It seems like it is something new every week when it comes to what influences the price of copper. This week, it is the on again, off again restrictions on the world’s largest telecoms equipment maker causing copper prices to fluctuate.

On Monday, copper prices fell as investors were skeptical after the United States put China’s Huawei Technologies Co Ltd. on a trade blacklist last Friday. The move made it nearly impossible for the Chinese company to purchase goods made in the U.S. It also prompted Beijing to tell Washington to show “sincerity” if it is to hold meaningful trade talks.

The message was apparently received as the U.S. temporarily eased some trade restrictions on the Chinese telecoms giant. U.S. Commerce Secretary Wilbur Ross said the Chinese telecom equipment supplier will be able to access U.S. technology for up to 90 days in order to maintain existing networks and handset updates, while American firms should use the time to source alternative suppliers. This decision, while only short term, pushed copper prices higher in overnight trading.

“The metals have all picked up off their lows for now,” tracking a rally in equities markets, Malcolm Freeman, director of Kingdom Futures, wrote in a note.  “Metal is continually being withdrawn from the LME warehouse system and at some point the pressure could trigger a huge turnaround in most of the metals,” Freeman added.

“There’s a lot of headwinds and it’s difficult to predict what will happen next” in the trade dispute, Helen Lau, metals and mining analyst at Argonaut Securities in Hong Kong told Reuters

A Stronger Dollar

The trade dispute with China has created an element of a currency war between the two nations.

A strong dollar impedes U.S. exports while the weaker Chinese currency makes China’s exports more competitive around the globe. The ongoing dispute is bullish for the dollar given monetary policy adjustments in Beijing.

“Copper has been an excellent barometer for the trade dispute between the U.S. and China,” states Andrew Hecht, of Seeking Alpha. “Expect some optimism to return to the market as it begins to focus on a potential meeting between Presidents Trump and Xi in Japan at the end of June.”

“While I believe buying copper on a scale-down basis will yield profitable results over the coming weeks, there is always the potential for a surprise on trade that could drive the price appreciably higher or lower,” adds Hecht. “I will be a cautious buyer of copper over the coming sessions on price weakness.”

Latest Prices

Three-month LME copper rose as much as 0.6% and was up 0.2% at $6,042.50 per ton in overnight trading, after closing down 0.4% the previous session. The most-traded July copper contract on the Shanghai Futures Exchange edged lower 0.1% to close at $6,904.04 a ton.

Trading on the COMEX this morning has been fairly even. Click on the chart below for current pricing.

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Jim Williams

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