As Trade Conflict Escalates, Copper Price Gets Hammered
June 26, 2018 9:41 amVideo
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Copper was one of the best performing commodities in 2017. The performance was highly correlated to the overall performance of the world economy and the perceived demand as the world shifted from combustion engine to electric vehicles. This year however, the commodity has become beleaguered. Year-to-date, the price has fallen by about 8%. The declines so far are attributed to the ongoing global tensions on trade.
Copper’s top qualities of malleability, ductility and heat conduction makes it ideal for most electrical work. For this reason, it is used in large utilities like power distributor. It is also used at a micro level especially in the vehicle industry. Vehicles use copper for most of their wired processes like lighting. Therefore, as the world economy improves, so does the demand for the metal and the items that it powers.
While this year started in a way bullish to the metal, things changed when the rhetoric on trade started. A trade war would mean less global demand for some products. For example, if there is a trade war between the US and the EU, a company like Tesla could see its demand falling in the region. This would mean less demand for copper.
Early this month, the price of copper rose to above $3.3 per ounce. As the trade war rhetoric increased, the price retraced and fell to $2.977. Today, it is trading at $2.98.
The question now is whether copper will continue moving lower or will it recover. The answer will depend on the trade issues and technical. On trade, if the ongoing trade conflict continues, it could mean less demand for ‘paper’ copper. On technical, the current price is lower than the short and medium-term moving averages. The buying pressure of the metal has fallen. This means that the price could continue moving lower. For contrarians however, this could mean a buying opportunity in hopes that the trade rhetoric will subside.
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