Copper prices dropped due to fears of the implications of the global trade war that appears to be imminent. The price of $2.635 per pound is the lowest level copper has reached since Jul 14, 2017. Over the past years, demand has not changed much, although growth is under some stress – as is growth in many other markets likely to be affected by a global trade war.
Importance of Copper Prices
Copper prices are a potential indicator of economic trends to come, which is why it is sometimes referred to by some as Doctor Copper. This name has been ascribed to it because copper is used in many different manufacturing and economic sectors. Although the demand for copper is still high, growth has taken a hit. However, for now, that hit is just a small one.
Copper has many uses in industry, home construction, and consumer products. It is the essential element in electrical wiring and other conductive items. It is commonly used in plumbing, engineering and many other industries. On July 14, 2017, copper traded at $2.663 and copper futures for September 2018 delivery traded at $2.6735. Why is this happening?
World’s Largest Copper Producers
The fact is that the world’s largest copper producers are Chile, China, US, and Peru. Copper production in China is around 1.76 million tonnes per year, while that in the US is 1.36 million tonnes (one tonne = 1,000Kg). Chile is way above both with 5.75 million tonnes per year.
The question is will President Trump be happy with his #3 position? Or will he turn to Chile to supplement his own production? US usage was 1.85 million tonnes in 2017. For that reason, Trump has to import copper to meet his country’s current annual usage.
Copper Futures Looking Good
While the US has imposed tariffs on aluminum and steel imports from China, The EU and Mexico, these countries have retaliated with their own tariffs. Copper futures are looking good for investors to buy, not only because of potential tariffs but also due to the potential future market for the metal.
Last year, copper increased by 32% on the market price as most investors placed their money on worldwide economic growth. However, the trade issues between the US and China have had the effect of creating the ideal climate for longer term buying strategies. That said, it seems evident to some analysts that current copper prices are too low for the market to clear.
US And China Trading Situation
Many are standing back and waiting for any aftermath or fallout from the Trump administration’s approach to worldwide trade. How will it be perceived by China, the EU and other major players in the global trade? Do we ‘wait and see’? it seems so for now while the US is not making many new friends and losing some of its old ones.
The situation between the US and China is an important aspect of any trade agreement, and it looks like this will not improve any time soon! Once again we will have to wait and see if copper prices drop any more.