Copper prices have been driven by the trade war and, recently, by equities rallying on hopes of easier US rates. To a greater extent than equities, copper appears to be pricing in a longer trade war, perhaps anticipating no fix until mid-2020, timed for the election run-in?

Being the most China centric of industrial metals, copper has been a good barometer of the US-China trade war, with the market hoping that a peace deal will restore prices to “pre-war” levels.

When the trade war began in early 2018, copper prices would rally into the start of each round of talks only to break down afterwards as new sanctions were threatened or introduced, but recent action suggests the metals market doesn’t believe a trade solution can be found this year.

Unlike Tolstoy’s version, this trade war is more soap opera than literary classic, with metals trapped in a cycle of hope and disappointment.

The US administration applied duties to steel and aluminium imports, then hit RUSAL with sanctions in April 2018 forcing a company restructure before RUSAL sanctions were lifted early this year.

Unlike the RUSAL sanctions, where the US had control of the timetable, the trade war has created a global issue where the outcome is much less predictable.

Chart 1: LME 3m Cu prices US$/mt

THE CHART SHOWS LME 3M COPPER PRICES SINCE EARLY 2018: • Q1’18: Trump introduces duty on aluminium and steel imports, followed by sanctions on RUSAL aluminium

• June’18: Copper rallies into the Beijing talks, only to drop $1500 during the summer

• Q3’18: Talks resume, no result • Dec’18: Temporary truce post G20 • Jan’19: Talks in Beijing and Washington • Chinese New Year shutdown

• May’19: Talks breakdown, new US tariffs and Huawei targeted, China retaliates

• June’19: US Fed suggests rate cut, equities rally to record highs lifting metals

US equities responded optimistically in June as the Fed talked up rate cuts to combat the trade war, hitting record highs and helping shore up industrial metals prices.

Source: LME/Reuters/ADMISI

14 | ADMISI - The Ghost In The Machine | July/August 2019

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