Copper plays with bears as trade tensions sink in
Analysts see further selling of metal, even as they remain bullish on long-term picture
Copper has plummeted as the industrial metal bears the brunt of investors’ worst fears for an escalation in trade tensions between the U.S. and China. While shares, bonds and other assets have been buffeted by the prospect of a trade war, few markets have reacted as negatively as copper.
The metal, which is used to make pipes, wiring, and electronics, has fallen around 15% since hitting its multiyear peak in early June. On Thursday, it approached bear market territory. Although the metal was up around 0.65% at $6,002.50 a metric ton on Friday, most analysts see further selling even as they remain bullish on the long-term picture for copper prices.
While copper hasn’t been targeted or threatened with tariffs, over 50% of this metal is consumed by China, making it especially sensitive to any slowdown in the world’s secondlargest economy. That adds to other factors pulling the metal down, including the strong dollar and healthy supply.
Investors are concerned “this feud will escalate and spill over into real economies,” said Daniel Briesemann, a commodities analyst at Commerzbank.
Trade tensions have sparked market volatility for some time, but in early April investors were spooked further after President Donald Trump’s threatened tariffs on specific Chinese products, sparking retaliatory threats from Beijing. On Friday, President Trump said he is ready to impose tariffs on $500 billion in imports from China, an amount roughly equivalent to China’s total exports to the U.S.
Developed world equities and bonds have mainly brushed off the rhetoric from Washington and Beijing, but emerging market equities, autos stocks, and soybean futures have been particularly hard hit by the trade tensions. And few markets have taken the news worse than copper.
Bets in New York futures mar- kets that copper prices will fall even further are higher than at any time since September 2015, according to data from Marex Spectron. Those betting on rising prices have sharply cut their positions, over a similar period.
The threat of tariffs on Chinese exports adds to concerns about economic growth in the country. Recent Chinese data on fixed-asset investment, industrial production, and credit expansion disappointed investors. The slowdown in credit comes as Beijing tries to rein in risky borrowing and lending.
“Tariffs have effectively knocked sentiment on the strength of the Chinese economy,” said Eleni Joannides, a copper analyst at commodities consultancy Wood Mackenzie.
Other factors haven’t helped the metal.
The strength of the dollar makes the greenback priced commodity more expensive for most buyers. The WSJ Dollar Index, which measures the cur- rency against a basket of 16 others—is up 5.3% in the last three months.
The Chinese yuan hit a 12month low against the greenback on Thursday.
Chinese broker and copper buyer Gelin Dahua slashed its net-long position on the Shanghai Futures Exchange earlier this month, in a move that further sapped risk appetite across the market.
Analysts are bullish about the long-term direction of the price of copper. Projections for tighter supply over the coming years have prompted a raft of recent forecasts for sharp future rises in copper prices.
For now, many analysts predict further price declines.
“Fundamentally speaking, there’s little to stop copper from selling off even more,” said Oliver Nugent, a commodities strategist at ING.
Mr. Nugent points to a lack of scrap copper sales as one sign that the supply of new metal is ahead of demand. Scrap sales tend to be a reliable indicator of short-term copper demand.