Trump, China, and Geopolitical Tensions Make Doctor Copper Sick

Analysts see copper prices as a reflection of the health of the global economy. For that reason, copper has been dubbed “Doctor Copper.” Copper prices rallied steeply after Donald Trump’s election. Though copper pared some of its post-election gains, it still managed to gain ~17% last year.

Copper is trading with marginal year-to-date gains of 1.7% based on May 17 closing prices and has lagged aluminum’s returns. In this article, we’ll look at some of the factors driving copper’s underperformance.

China is the world’s largest copper consumer and is the biggest market for miners (SCCO) (GLNCY) like BHP Billiton (BHP) and Teck Resources (TECK). Some of the economic data points from China have disappointed markets this month. China’s April manufacturing PMI (purchasing managers’ index) and fixed asset investment data were lower than expected. Furthermore, Chinese copper imports, which are seen as a leading indicator of Chinese copper demand, were also lower in April. Rising geopolitical tensions, especially in the Korean peninsula, aren’t helping copper either.

Furthermore, we still don’t have much clarity about Trump’s infrastructure investments, which seemed to be a key driver of copper’s upward price action. Copper sentiment improved considerably after President Donald Trump’s election as investors bought copper expecting higher demand from Trump’s proposed infrastructure investments. With the Trump reform agenda coming under scrutiny and Chinese economic data raising a red flag over the country’s copper demand, copper prices have come under pressure.

Some of the copper miners like Freeport-McMoRan (FCX) have now fallen to their pre-election levels. We’ll discuss this more in the next article.