Copper sank to near its lowest price of 2019, as renewed trade hostilities between the U.S. and China reinforced fears about the world economy.
The metal dropped 1.8% on the London Metal Exchange on Friday after President Trump threatened to impose tariffs of 10% on an additional $300 billion worth of imports from China. The decline dragged copper’s price down to $5,761 a ton, its lowest level since June 7 and close to its trough for the year.
Copper, considered a bellwether for global growth, is on course to lose 3.4% for the week. Such a decline would be the market’s biggest since November 2018, a sign of how the Federal Reserve’s rate cut this week failed to alleviate worries about slowing global growth.
In another sign of anxiety, gold prices rallied in tandem with other perceived havens on Friday. The precious metal surged 1.6% to $1,455.70 a troy ounce, almost a fresh six-year high, in New York.
Oil prices rebounded after U.S. crude had its steepest one-day decline since February 2015. Brent crude rose 3.3% to $62.52 a barrel and West Texas Intermediate gained 3.1% to $55.57 a barrel.
If the new U.S. tariffs take effect on Sept. 1, they will not affect the consumption of industrial metals as directly as earlier rounds of levies. Instead of focusing on industrial goods, they will include consumer products such as toys and clothing. For commodity investors, said Colin Hamilton of BMO Capital Markets, the worry is that they will hit economic growth more broadly and that this in turn will reduce demand for raw materials.
This impact would worsen if the levies mark the start of a new series of escalating tariffs. “China doesn’t want a trade war, but will fight one if necessary,” Hua Chunying, a spokeswoman for China’s Ministry of Foreign Affairs, said Friday without giving details about how Beijing planned to respond.
The end of the short-lived trade truce compounded existing pressures on copper prices. Manufacturing, a major consumer of metals, is flagging throughout the world’s major economies. Purchasing managers’ indexes published this week showed that factory activity shrank in China, the eurozone and U.K. in July.
In the U.S., activity increased but only slowly, according to the Institute for Supply Management. Respondents to the ISM’s survey expressed concern about U.S.-China trade relations and upheaval in their supply chains as they move manufacturing out of China.
Industrial-metal prices also were knocked by guidance from Chairman Jerome Powell that the Fed’s rate cut wasn’t the start of a concerted effort to loosen monetary policy. His comments on Wednesday boosted the dollar, hurting the price of commodities that trade in the U.S. currency on international markets.
One source of optimism for investors in metals and mining companies is that copper is in relatively short supply. Miners have cut back on investing in new capacity since 2016 and that has “really tightened up commodity markets in the background,” said Olivia Markham, a portfolio manager at BlackRock.
Copper demand exceeded new supplies of the metal by 150,000 tons in the first four months of the year, according to the International Copper Study Group, an intergovernmental organization.
this week cut its forecast of how much copper it would produce this year by 10,000 tons to around 1.45 million tons, mainly because of the recent shutdown of its Mopani plant in Zambia.
Still, most analysts say this lack of major new supplies will put a floor under prices rather than lead to a meaningful rally. Plus, some say prices haven’t fallen far enough to encourage companies to stop producing copper and tighten supplies further. “Most copper producers are still making money,” said Hunter Hillcoat, an analyst at Investec.
Hedge funds and other money managers are betting heavily that prices will continue to fall, he added.
Write to Joe Wallace at Joe.Wallace@wsj.com
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