Copper prices have come under pressure in 2018. In this article, we’ll see what’s been weighing heavily on the metal this year.
The trade war unleashed by President Donald Trump has taken a toll on risky assets. Copper tends to underperform in periods of uncertainty and rising geopolitical risk—something we’re witnessing now.
In terms of fundamental drivers, China’s economic indicators have failed to enthuse the markets. China’s manufacturing activity fell slightly in June on weakness in the export sector. Prior to that, China’s May economic data, including industrial production, disappointed the markets.
In the first five months of 2018, China’s fixed asset investments rose 6.1% year-over-year, the slowest growth in two decades. According to Reuters, China’s May retail sales growth was the weakest in 15 years. Because it’s the largest copper consumer, China’s growth outlook impacts copper prices and miners such as Freeport-McMoRan (FCX), Rio Tinto (RIO), and First Quantum Minerals (FM). Although China’s copper imports have been strong so far in the year, we could see them taper off if the country’s demand growth moderates in the second half.
Trade tensions and concerns over China’s economic growth outlook have spooked investors, and copper’s supply side has done little to comfort the bulls. More than halfway into the year, we haven’t seen any news of major supply disruptions, and labor talks have been largely smooth. According to the International Copper Study Group, global copper markets were in a supply surplus in the first quarter.
Having said that, copper bulls might still like their chances, as we’ll explore in the next article.