LUNMF - Copper Trends 2019: All Eyes on US-China Trade War

Copper spent most of 2019 at the mercy of the US-China trade war, which pushed and pulled the red metal’s price all throughout the year, with political turmoil in South America quietly influencing the metal’s supply as well. 

In the first half of the year, copper’s price made gains, only to begin to fall sometime toward the end of Q2. This trend continued on well into Q3. Copper’s price began to recover in Q4, but has not yet surpassed its previous highs from Q1. 

With 2019 rapidly drawing to a close, here the Investing News Network (INN) takes a look at what the trends for copper were in each quarter, how prices performed throughout the year and what analysts said about developments quarter by quarter.

Copper trends Q1: US-China talks look bright

Q1 was a quarter defined by increase, but the red metal still had some bumps along the way, occasionally losing some of its heat only to regain it. Copper started the year trading for US$5,838 per metric ton and increased by 11.06 percent to US$6,484 by the end of the quarter. 

While the price did dip occasionally throughout the quarter, the price did not dipped below US$5,810.50, which copper traded for on January 3. The high for the quarter was on March 1, when copper traded for US$6,570.

Q1 was largely defined by the progress being made during the US-China trade talks, which at the time were looking bright. 

“Progress made in the US-China trade talks through January and February prompted President Donald Trump to suspend a tariff hike on US$200 billion of Chinese imports planned for (March 1). China’s markets rallied on the news, buttressing demand for the red metal,” Nicolas J. Aguilar of FocusEconomics told INN previously.

The end of Q1 also marked the beginning of protests at copper mines in South America, a trend that plagued the red metal for the rest of 2019. Supply concerns rose as locals protested MMG’s (ASX:MMG,HKEX:1208) Las Bambas mine with blockades on public roads. 

Copper trends Q2: Tariffs impact prices

Q2 was similar to Q1: copper prices continued to fluctuate as the US and China continued their turbulent trade talks.

Copper remained steadily within the US$6,350 to US$6,500 range throughout April, only to drop by nearly US$200 in one day at the beginning of May, marking a downward trend for the metal that maintained throughout the rest of the quarter. The drop corresponded with Trump’s doubling of tariffs on Chinese imports. 

Henry Salisbury, Wood Mackenzie’s copper demand analyst, previously told INN that tariffs were one of copper’s most significant curveballs in Q2.

“The introduction of further US tariffs on US$200 (billion) worth of Chinese goods added further pressure on an already slowing global macroeconomic outlook for this year. Further tweets from President Trump threatening tariffs on all Mexican imports (which were later removed) led to reactions in the market that could not be anticipated,” Salisbury said. “Prices and equities began to tumble.”

Prices continued to drop in June, as the copper price fell below the US$6,000 mark and inched toward US$5,800. The red metal made some gains toward the end of the quarter, trading for US$5,970 on June 28, still a substantial drop from the beginning of Q2.

Q2 was also a quarter marked by disruption, with Wood Mackenzie reporting more disruptions in the first half of 2019 than all of 2018. The disruptions ranged from strikes at Codelco’s Chuquicamata mine and floods in Chile to unplanned cuts in Africa and Europe.

Copper trends Q3: Protests hurt production

As the US-China trade talks dragged on, copper had a turbulent quarter, heating up during the summer months only to fall by September. Copper production also took a hit with both US and Chinese manufacturers reporting lower-than-projected numbers. 

Copper started the quarter on the downturn it inherited from Q2, but made some gains during July when it hit its peak of US$6,065 on July 19. Copper’s price began to drop considerably after that, though, falling by 4.9 percent in two weeks to trade at US$5,767 on August 2.

Chris Berry of House Mountain Partners previously told INN that investors should not expect a dramatic price increase any time soon given the volatility of the US-China trade talks. 

“The US essentially wants China to reconstruct their entire economic model and increase safeguards against intellectual property theft to level the playing field with the rest of the world,” said Berry. “The Chinese think they can wait until after November 2020, when the US presidential election will take place, to even consider seriously negotiating.

“Neither party here seems willing to budge, so this game of economic chicken will likely drag on to the detriment of the consumer, which is of course the engine of growth in the US and an increasing source of growth in China,” he added. 

Disruptions in South America came to a head during Q3 when multiple countries experienced protests and floods, both of which affected output. Continued protests at MMG’s Las Bambas mine coupled with floods in Chile slowed the growth of the worldwide copper supply. 

Copper trends Q4: Trade deal ahead?

As of publication, the price of copper has been on the rise, increasing by 4.3 percent over the course of the first two months of Q4. Although copper’s price has made gains throughout the quarter, the metal still oscillated, with some small dips and spikes throughout the period. 

Copper hit its peak for the quarter on November 8 when it traded for US$5,951. Copper has not traded below the US$5,600 mark since October 4, when it exchanged hands for US$5,598.

Some of copper’s gains can be attributed to news that China and the US were getting closer to a trade deal in mid-November, which sparked a renewed interest in the red metal. In addition, many analysts see copper growing in the future as base metals become more important to the economy. 

“We’re seeing more and more appetite into mining and metals,” said Jason Chang, CEO and managing director of EMR Capital, to INN recently. 

While trade talks improve, however, the situation in South America, particularly Chile, grows worrisome. Protests in Chile, which began early in Q4, have turned violent — killing at least 23 and injuring over 2,300. 

“If the crisis worsens, and major political demands are made again, major unions get involved, general strikes are organized … no doubt there will be vulnerabilities to the services that mining firms require,” Juan Carlos Guajardo, head of consultancy Plusmining, told Reuters. 

Q4 was a quarter marked by many companies’ optimism for the future, like Freeport-McMoran’s (NYSE:FCX) plan to introduce artificial intelligence at its copper mines to increase output, Barrick Gold’s (TSX:ABX,NYSE:GOLD) plans to pivot to copper and Lundin Mining’s (TSX:LUN,OTC Pink:LUNMF) expectation of increased copper output for 2020. 

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Securities Disclosure: I, Sasha Dhesi, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.