Trade Tensions Put Weight on Copper Price

- May 21st, 2019

As China and the US continue to work through their tensions, the copper price has become somewhat of a casualty in the interim.

With China and the US still working through their trade tensions, the copper price has become somewhat of a casualty as the war wages on.

After US administration moved to put tariffs on US$200 billion worth of Chinese imports, the Asian nation retaliated last week with US$60 billion of tariffs on US goods.

Spooked investors watched from the sidelines as the US subsequently put major Chinese telecom company Huawei Technologies (SZSE:002502) on a trading blacklist late last week, deepening the dispute between the two nations.

In turn, Lu Kang, a foreign ministry spokesperson, responded to questions about the hypothetical trade deal — which has continued to hang in the balance through the squabbling — by saying Washington needs to show “sincerity” going forward.

“But because of certain things the US side has done during the previous China-US trade consultations, we believe if there is meaning for these talks, there must be a show of sincerity,” he told media.

Some of the tension between the two major nations was eased this week when Washington issued Huawei a temporary general license, allowing the company to buy US goods to continue providing services to existing customers. However, the company is still currently banned from buying US equipment to make new items.

As the conflict continues on, copper prices have found themselves struggling alongside international relations. While the red metal made gains last Thursday (May 16) as it reached US$6,088 per tonne on the London Metal Exchange, the days that followed saw the commodity trend downwards. It eventually fell past the US$6,000 mark to finish Monday (May 20) at US$5,984.

While analysts from FocusEconomics lay out a fairly positive outlook for copper’s near-term price in their latest commodity forecast report, the economist group acknowledgedsthe weight Sino-US relations have put on the copper price.

“Looking ahead, analysts expect copper prices to climb in the near-term. Particularly, demand is widely expected to outstrip supply over the next five years, owing to the usability of the metal in new technologies, especially in renewables and electric cars,” the report reads.

“That said, a faster-than-expected slowdown in China remains a key downside risk to the outlook, as do trade tensions between the world’s two largest economies.”

According to predictions from firms polled by FocusEconomics, copper prices will average US$6,549 by Q4 2019 and US$6,854 by Q4 2020. Q4 2019’s minimum forecast is docketed at US$5,600 with the maximum forecast being US$7,500.

Also sure to impact copper this week is an update from MMG’s (ASX:MMG,HKEX:1208) Las Bambas mine in Peru, where Indigenous protestors have allegedly resurrected a blockade taken down in April.

Blockades originally went up in February over issues related to MMG paying to use a road that runs through the local community’s farmland, but were later removed after a mutual agreement.

According to Reuters, the Fuerabamba community has once again set up a blockade that impacts transport going in and out of the mine, reportedly due to compensation talks with MMG falling apart.

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Securities Disclosure: I, Olivia Da Silva, currently hold no direct investment interest in any company mentioned in this article.

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