Copper prices increase due to restricted nearby supply, with trade negotiations between the U.S. and China receiving attention.
Catching Up with Copper Prices: A Rollercoaster Ride Due to Trade Tensions
Copper prices have seen an uptick in London on Friday, bolstered by a weaker dollar and tighter nearby supply, as reflected in the premium for nearby copper contracts against those further along the maturity hitting a two-and-a-half-year high.
Benchmark three-month copper on the London Metal Exchange (LME) climbed 0.1% to $9,443 a metric ton by 0955 GMT.
In a surprising turn of events, U.S. President Donald Trump announced his expectation of significant negotiations between the United States and China on trade this weekend, predicting that punitive U.S. tariffs on Beijing of 145% would likely come down. This news, while offering potential for de-escalation, has left analysts with mixed opinions on what can be achieved in the short-term.
Ben Davis, head of European metals and mining research at RBC Capital Markets, said, "The talks provide potential for the de-escalation, but we don't have strong opinions on what can be achieved in the short-term. The sooner they can de-escalate, the better."
Trade tariffs pose long-term risks to global demand for metals that rely on economic growth. However, the U.S.-China trade conflict and a probe into copper in the U.S. are reducing the short-term availability of the red metal on the Shanghai Futures Exchange (SHFE) and within the LME system. This is due to the attracting of more copper into the COMEX-owned warehouses.
Buoyed by a Weaker Dollar and Tariff Tensions
Copper inventories in SHFE-monitored warehouses have dropped 9.6% this week. These stocks have decreased 70% since end-February, driving up the premium of SHFE June copper contracts over the October ones.
On the LME, the spread between the cash LME and the three-month copper contract ended Thursday at a premium of $46 a ton, the highest since November 2022. It swung from a discount of $63 in early April as stocks in the LME-registered warehouses continue to see outflows.
Indicating robust import demand in top metals consumer China, the Yangshan copper premium is at $102 per ton, the highest since December 2023. Consumers in China seem to be confident that their government is going to step in with stimulus to mitigate the tariff impact, as evidenced by the record high in China's copper concentrate imports in April.
In 2023, the ongoing trade tensions between the US and China impacted copper supply chains, causing uncertainties in copper imports and exports. This, in turn, potentially affected global supply balances. The US was a major supplier of copper scrap to China, but tariffs imposed during the trade dispute put these supplies at risk.
Furthermore, trade tensions often lead to volatility in commodity markets, influencing investment decisions and supply chain strategies. The potential for de-escalation this weekend offers hope for market stability and reduced uncertainty, but the long-term impacts of these tensions on the copper market remain to be seen.
- The talk of significant negotiations between the United States and China on trade this weekend has left analysts with mixed opinions about the potential de-escalation and its impact on the short-term, especially in the finance sector.
- The U.S.-China trade conflict, coupled with a probe into copper in the U.S., is reducing the short-term availability of copper in the Shanghai Futures Exchange (SHFE) and within the LME system, due to the attracting of more copper into COMEX-owned warehouses.
- In London, stocks in the LME-registered warehouses continue to see outflows, as the spread between the cash LME and the three-month copper contract reached a premium of $46 a ton, the highest since November 2022.
- Indicating robust import demand in top metals consumer China, the Yangshan copper premium is at $102 per ton, the highest since December 2023. Consumers in China seem to be confident that their government is going to step in with stimulus to mitigate the tariff impact.
- In 2023, the ongoing trade tensions between the US and China impacted copper supply chains, potentially affecting global supply balances. This, coupled with the uncertainty in copper imports and exports, could have long-term effects on the copper market.
