Prices for copper fell drastically on Friday in response to the prospect of an escalating trade conflict between the world’s two largest economies.
While it certainly isn’t something that’s new to the markets, having dealt with these worries over the past year or so since tariff threats between China and the U.S. first emerged. However, prices for the red metal have plummeted in response to new tweets from President Donald Trump.
In Friday’s afternoon trading session, prices for copper for delivery in July dropped down to $2.5685 per pound, or $5,660 per tonne, a 3.6 percent decline from the previous day’s settlement as well as hitting a two-year low in the process.
At the moment, prices for the red industrial metal are trading 23 percent below where they were last year, technically placing the metal in a bear market. President Trump went on to say that he would impose an extra 10 percent tariff on $300 billion worth of Chinese imports as of September 1st.
“The chances of a compromise deal are remote given that China is unlikely to accept us. Demands for a fundamental change to its industrial policies. We anticipate that all Chinese exports to the US will be subject to a tariff of 25% by mid-2020,” said chief commodities economist Caroline Bain from Capital Economics. “While we forecast that a full-blown trade war would mean that the level of global GDP would be 0.5% lower than it would otherwise have been by end-2020, we think the impact on metals demand will be more severe, which is a key reason why we expect most metals prices to fall further this year.”
Copper has been acting in contrast to a variety of other metals, both industrial and precious, which have been rising over the past couple of months. This has worried investors, as copper prices have historically acted as a strong predictor of the health of the Chinese economy, as well as a “canary-in-the-coalmine” for future economic downturns.
Many times, such as back in 2016, strong coppers prices ended up predicting that a recession wasn’t on the horizon, despite growing fears among the financial community.
At the same time, another sign of market anxiety came from gold prices, which rose in tandem with other perceived monetary havens on Friday in response to the news. Gold prices rose by 1.9 percent, reaching $1,445.60 per ounce, the highest price seen since May 2013.
Industrial-metal prices took another hit earlier last week went Fed Chairman Jerome Powell said that the central bank wasn’t going to start a series of consistent rate cuts in the future. However, one source of optimism for metal investors and mining companies is that copper is now in relatively short supply, with miners having cut back on their investment capacity since 2016.
For the first time in a while, copper demand has exceeded new supplies by 150,000 tons in the first four months of 2019. Mining giant Glencore also cut its forecast on how much copper it would produce in 2019 by an extra 10,000 tonnes to just 1.45 million tones due to shutdowns in Zambia.
