Donald Trump plans to pump billions of dollars to revive the US infrastructure. Massive infrastructure investments combined with an expected increase in the country’s economic activity could boost US copper demand. However, the key question would be how Trump intends to fund his massive infrastructure investments.
Trump would need to get Congress to approve spending big sums on the infrastructure sector—something that Republican legislators haven’t been big fans of in the past—given their negative stance toward stimulus-fueled growth and rising budget deficits.
While Trump’s proposed economic policies could boost the domestic steel industry, copper’s nuances are somewhat different from steel. Unlike steel, where prices are more regional in nature, copper prices are determined by the market. London Metals Exchange prices are the global benchmark.
Notably, copper prices have been on a falling trend since 2011 as demand growth slowed in China. To make things worse, planned expansions by miners (XLB) such as Freeport-McMoRan (FCX), Southern Copper (SCCO), and Turquoise Hill Resources (TRQ) (RIO) pushed the market into a surplus.
Trump’s acceptance speech had a tone of reconciliation compared to his aggressive election rhetoric. If Trump can walk the thin line between boosting US growth and not hurting global trade and economic activity, copper prices should get support. However, if we see trade wars, global economic activity could be jeopardized and copper prices could come under pressure.
With the election results behind us, Freeport investors need to watch several other fundamental factors. We’ll discuss these more in the next part.