Copper Price Hits 3-month Low on Rising Geopolitical Tension

The copper price hit a three-month low on Tuesday (April 18) as geopolitical tension continued to rise.
In particular, worries over North Korea and the Middle East, as well as concerns about the UK’s call for a general election, weighed on base metals. London Metal Exchange copper closed the day down 2.1 percent, at $5,573 a tonne, after touching $5,569, its weakest price since early January.
“There is still some uncertainty in the market about geopolitical issues, and there is some risk aversion at this stage,” ABN Amro analyst Casper Burgering told Reuters. “A small deficit [in copper] is expected this year and demand is very good … but that hasn’t benefited the metal.”

Geopolitical tension rising

As mentioned, worries over North Korea and the Middle East are part of the reason the copper price is languishing. Earlier this month, the US bombed Syria as well as an Islamic State cave complex in a remote area of Afghanistan. Meanwhile, this past weekend tension regarding North Korea ratcheted up after a ballistic missile launch from the country failed. US President Donald Trump said he is willing to consider “kinetic” military action, including a sudden strike on the country.
This week, UK Prime Minister Theresa May’s call for a snap general election has also fueled investor concerns. The move, which she hopes will strengthen support for her Brexit plan, has left market watchers wondering which other European countries may hold elections this year. The first round of France’s presidential election is just one that is on deck; it is scheduled to take place on April 23.

All of that uncertainty has caused risk aversion in investors, Danske Bank analyst Jens Pedersen told Reuters. “Base metals have performed rather poorly, owing to risk aversion,” he said. He noted that the lack of information about Trump’s $1-trillion infrastructure spending plan has not helped.
“Copper had such a strong ride after the US elections last year, due to the specific story about infrastructure and defence spending in the US, so it’s possible for risk sentiment to stabilise without it really helping copper,” he noted.

Copper price recovery ahead

Despite investors’ concerns over worldwide instability, analysts remain cautiously optimistic about the copper price for the rest of the year.
“The market seems to have left behind its worst moment, although it’s very premature to anticipate a new cycle of high prices,” Chilean Mining Minister Aurora Williams said at CRU Group’s World Copper Conference last week.
CRU Group itself is forecasting an upward trend in the copper price through 2021, according to Vanessa Davidson, the firm’s director of copper research. “We expect pressure on costs to continue … but we see copper prices rising faster than operating costs, ensuring that profit margins increase,” she said.
At the same conference, Arnaud Soirat, Rio Tinto’s (ASX:RIO,LSE:RIO,NYSE:RIO) copper and diamonds unit chief, said that copper will draw support from factors such as limited new greenfields projects, ore grade declines and end-of-life mine closures over the next few years.

According to the International Copper Study Group, the copper market ended 2016 with a 50,000-tonne deficit, supported by a 2.5-percent increase in Chinese apparent demand. Mined copper production jumped by 5.3 percent, or 1 million tonnes, last year due mostly to a large increase in concentrate output from Peru.
“Copper’s long-term fundamentals are quite positive, and we expect to see further demand growth from emerging markets,” Soirat said. He is forecasting a small deficit for 2017.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.