While commodities generally follow the underlying supply-demand dynamics in the long term, according to some observers, copper prices also tend to reflect macro developments. Copper has been dubbed as “doctor copper” because many market observers see copper prices as a reflection of the global economy.
Copper prices have underperformed the broader commodity space this year. Among other factors, US-China trade frictions have played heavy on copper in 2018. Copper prices tend to be more sensitive to geopolitical issues than the prices of other industrial metals (DBC).
US-China trade talks
However, copper prices have seen a smart rally this week. Lowering US-China trade tensions after last week’s talks between the two countries seems to be the key driver behind the upwards price action.
Although pessimists might frown upon the non-inclusion of a dollar amount on the proposed trade deficit reduction, the talks seem to be heading in the right direction. Copper miners including Freeport-McMoRan (FCX), Glencore (GLNCY), Southern Copper (SCCO), and Antofagasta (ANTO) have also followed copper higher this week.
On the fundamental level, Chinese copper imports have been strong this year. However, according to the ICSG (International Copper Study Group), copper markets were in a supply surplus in the first two months of 2018.
Meanwhile, while trade war fears have abated, they are still making markets uneasy. We’ll discuss this aspect in the next article.