China’s copper demand indicators have been stable over the past few months and have wound up supporting copper prices. Copper producers (BHP) (XLB) like Freeport-McMoRan (FCX), Teck Resources (TCK), and Southern Copper (SCCO) have also moved to higher price levels, tracking positive broader market sentiments.
In November 2016, China imported 380,000 metric tons of unwrought copper and copper products—a yearly increase of more than 31.0%. But before November, Chinese copper imports had fallen on a monthly basis for seven consecutive months.
However, there are concerns that China’s economic growth rates could be impacted when Donald Trump takes office. Trump’s tough stance on imports from China could be negative for the Chinese economy because exports are a key pillar of the Chinese economy, having helped pull millions of people out of poverty in the country. To be sure, China’s growing middle class has been a key driver of global copper demand.
Under Trump’s presidency, if the US decides to get tough on Chinese imports, we could see an impact on the Chinese economy. It remains to be seen whether the expected rise in US copper demand could balance out any fall in Chinese copper demand.
If Trump “gets tough,” as he’s promised, on Chinese imports, China could increase its infrastructure investments to support its own economic activity. And higher infrastructure investments in China would support the country’s copper demand.
But an additional fallout of a trade war with China could be the depreciation of the Chinese yuan, and currency devaluation would help make Chinese exports more competitive. It would also only intensify a trade war.
In the next and final part, we’ll explore what such a trade war could mean for Freeport and copper markets.