The U.S.-China Trade War Is Badly Hurting Copper

The price of copper has plunged of late as the U.S.-China trade war has intensified. According to a report in the Financial Post, the price of copper recently plunged to its lowest level in two years thanks to the yuan’s weakness and stuttering economic growth in China as a result of the trade war.

The report went on to point out that the price of copper on the London Metal Exchange is at $5,632, the lowest level seen since June 2017 and down 20% from the year-ago period. However, it is believed that the price of copper won’t decline any further. Ross Strachan, an analyst at Capital Economic was quoted by the Financial Post as saying:

“We are expecting (copper) mine production to fall slightly this year,” he said. “You don’t need a lot of demand growth if you’re in that situation, so I think we are well supported at these levels.”

However, don’t be surprised to see further declines in the price of copper as the trade war has just intensified and it could take a big toll on China.

An Intensifying Trade War is Bad News for Copper

China is the world’s largest importer of copper, so slowing economic activity in the country will definitely have a negative impact on demand for the commodity.

In fact, it has recently been reported that economic growth in China has dropped to its slowest rate in nearly 30 years. Not surprisingly, demand for copper, which is primarily used in the industrial sector, has fallen off a cliff.

Reuters reports that copper imports into China fell a massive 27% in the month of June. Chinese imports of unwrought copper have dropped to the tune of 12.5% in the first half of the year as factory activity in the country has been shrinking in light of the trade war.

Reuters quoted a Chinese analyst as saying:

“The demand is still weakening … for most of the sectors, especially for air conditioning,” said He Tianyu, a copper analyst with CRU in Shanghai.

“The trade war could be one of the factors but actually the bigger problem is China’s domestic demand. This summer is weaker than last year,” he added.”

More Copper Price Weakness Should Not Be Ruled Out

President Trump has just announced that he will be imposing higher tariffs on Chinese goods in retaliation to Beijing’s hiked tariffs.

China announced that it will impose additional tariffs to the tune of 10% on imports from the U.S., beginning next month. In retaliation, Trump announced that he is raising tariffs on $250 billion worth of Chinese goods to 30% from 25%, while the remaining $300 billion worth of goods on which tariffs are to be imposed will be taxed at 15% rather than 10%.

As a result, don’t be surprised to see demand for Chinese goods fall further and that could further dent demand for copper. All of this indicates that the copper price beatdown is not over just yet because the trade war has just gone to the next level.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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