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Is Fear of a Global Trade War Making Doctor Copper Sick?

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Mar. 14 2018, Updated 12:36 p.m. ET

Doctor copper

In the long term, commodities generally follow the underlying demand-supply dynamics, but according to some observers, copper prices also tend to reflect macro developments. Copper has been dubbed “doctor copper” because many observers see copper prices as a reflection of the global economy. Copper (BHP) (VALE) is also sensitive to geopolitical factors, and some traders use copper as a proxy to bet against the global economy.

Looking at copper’s price action, the red metal rose almost 30% last year and built on its 2016 gains. Expectations of strong global economic growth, a weaker US dollar, and the expected supply-side deficit supported copper (FCX) (SCCO) last year.

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Section 232

Copper prices have been subdued for most of 2018. Copper came under selling pressure after the United States Department of Commerce released its Section 232 findings in mid-February. While other factors also seem to be at play in copper’s price action, the risk of a global trade war seems to be weighing heavily on investors’ minds. Market sentiments can impact copper’s short-term price movements.

Traders seem to have gone into a risk-off mode as countries, including France and China, have signaled that they might retaliate if hit with a tariff. US steel mills stand to benefit from higher steel prices due to the tariffs, and we’ve seen restart announcements by U.S. Steel Corporation (X). But steel end users could see costs spike after the tariffs.

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