Copper prices remain on downward trend
On July, copper prices fell to its lowest since July 2017. Copper prices began to increase in January 2016 and was on a good run until June this year. Due to fears of consequences from a US-China trade war, the market for copper prices were corrected. Currently, COMEX copper stands at 2.77 USD per pound.
Copper is often considered an indicator for economic prospects due to its widespread use in industry, transportation, power grids and construction. The fact that the US and China make up almost half of the world’s consumption of copper and the ensuing tariff escalation has scared investors.
A higher copper price suggests industrial activity is improving, while a lower price indicates the opposite. For this reason, copper is often referred to as “Doctor Copper”. Any price changes in copper can be a symptom of an underlying economic issue. September copper delivery traded as low as 2.67 USD per pound, its lowest since July 14, 2017, when it hit 2.66 USD.
In 2017, a strike at the world’s leading copper mine in Chile, Escondida, lasted forty-four days and cost the mine’s operator BHP over one billion USD. The market lost over 150,000 tons of output. BHP and the Union postponed a potential agreement by one year, and in late May and early June, the threat of a strike and work stoppage took the price of copper to its most recent peak.
Copper stopped just short of its December 2017 peak price in early June as BHP and the Union representing workers at the Escondida mine entered a month-long period of negotiations over a new deal. At the same time, trade issues between the US and China, the world’s leading commodities consumer had been weighing on the prices of many industrial commodities. Copper shifted its attention from the potential for a strike to the prospects for a prolonged trade dispute that could lead to a trade war between the US and the leading copper consumer in the world.
However, while the announcement the US may introduce additional tariffs of 10 percent on 200 billion USD worth of Chinese imports undoubtedly contributed to the abrupt selloff, even before it arrived, copper was already under pressure, falling 8.8 percent on the Shanghai Futures Exchange from the recent high of 54,580 RMB a ton in mid-June.
“Indeed, although trade tensions have already escalated further than we had originally thought, we had always expected that the prices of industrial metals would fall this year owing to slower growth in China.
“We think that there are now clear signs that the economy is losing momentum – investment growth was particularly downbeat in May and our proxies for metals demand are also showing some warning signals – but we suspect that this has not fully been factored into industrial metals prices yet. As such, we expect prices to fall further as it becomes evident that China’s demand will be more subdued,” said economist Simona Gambarini of Capital Economics, an independent London research house.