The earnings of copper miners such as Freeport-McMoRan (FCX), Antofagasta (ANTO), and Rio Tinto (RIO) are sensitive to copper prices. In this article, we’ll analyze recent movements in copper prices and see what could be weighing on the metal.
Recently, LME (London Metal Exchange) copper prices hit their lowest level since December 2017. Furthermore, prices fell below their 200-day moving average for the first time since 2016. Prior to 1Q18, copper saw quarterly gains for six consecutive quarters. Let’s see what factors have impacted copper’s recent price action.
Trade war fears
Though President Donald Trump watered down the Section 232 tariffs that were imposed on steel and aluminum imports, he opened a new battlefront with China by announcing possible tariffs on Chinese goods that could total almost $60 billion. Fears of a trade war spooked global markets, and there was a sell-off in risk assets with copper being no exception. Several analysts refer to copper as “doctor copper” because they see copper prices as a reflection of the global economy.
2017 price action
Copper gained ~30% last year, which included an 11.6% spike in December alone. In December, the markets factored in a lot of positives for copper going forward in 2018. Among the most notable bullish arguments were expected supply disruptions amid a wave of labor negotiations, higher copper demand due to global growth, and improved commodity prices due to a weaker US dollar.
The most prominent bullish argument was focused on the wave of labor contracts coming up for renewal in 2018. Last year, we saw labor actions at several leading mines, including those owned by BHP Billiton (BHP) and Southern Copper (SCCO). In the next article, we’ll see how copper’s bullish thesis is currently holding up.