Key information
- Copper prices fell almost 1.7 percent to below 3.98 euros per pound, a drop of almost 6 percent since the US election results were announced.
- Shares of major copper producers have fallen, with BHP's stock falling another 6 per cent since the US election, taking its year-to-date decline to more than 21 per cent.
- Smaller producers like Ivanhoe Mines and Antofagasta saw larger declines, with their U.S.-listed stocks falling 8 percent each.
Copper prices fell nearly 1.7 percent on Monday to below 3.98 euros per pound, a drop of nearly 6 percent since the US election results were announced. This decline follows an increase in September, fueled by hopes of economic stimulus measures in China. However, copper has now lost almost 12 percent from its peak and is on track to close at its lowest level in two months.
The victory of Trump and the Republicans injected volatility into the metals market, leading to bearish sentiment among investors in major copper producers. BHP's stock continued its downward trend on Monday, losing another 6 percent since the US election and taking its year-to-date decline to more than 21 percent. Rio Tinto has also seen declines, falling 3 percent on Monday and down 16 percent year to date.
Copper price hit by election uncertainty
Similarly, Glencore and Southern Copper have seen their New York share prices fall by 6 percent and 8 percent, respectively, since November 5. Freeport McMoRan's value declined 5 percent, while Teck Resources saw a more modest decline of just over 3 percent. However, smaller producers like Ivanhoe Mines and Antofagasta saw larger declines, with their U.S.-listed shares falling 8 percent each. Over-the-counter shares of Chinese group CMOC have also seen double-digit declines since the election.
Customs tariffs and trade uncertainty
Marcus Garvey, head of commodities strategy at Macquarie, highlighted the concerns in a trading floor note, citing the bank's economists predicting potential tariffs of 60 percent on all Chinese imports. This measure, combined with broader trade-limiting tariffs, could reduce China's exports by 8 percent and its GDP by 2 percent in 2025. China accounts for more than half of global copper consumption .
Mr Garvey stressed that such a slowdown in global growth would have a negative impact on overall commodity prices, further compounded by the strengthening US dollar. Although commodities are traditionally considered a hedge against inflation, this scenario presents a unique situation in which inflation is not driven by high demand or supply shocks, which could prevent commodities to play this role.
China's response
While the specifics and implementation mechanisms of the tariffs remain uncertain, Macquarie notes that Chinese authorities could attempt to mitigate the impact by increasing domestic demand. Although investor disappointment over the outcome of a highly anticipated meeting of China's National People's Congress also contributed to the weak economy.
Beyond concerns about the Trump administration's influence on commodity markets, investor disappointment over the outcome of a highly anticipated meeting of China's National People's Congress also contributed to the weakness. Although the nation's highest legislative body detailed a sweeping bond program aimed at reducing the debt burden of local governments, no new tax measures have been announced. Larry Hu, Macquarie's chief China economist, said the interest payment relief for local governments amounts to less than 0.1 percent of the country's GDP per year and that while it could reduce the risk of local government debt, it does not directly stimulate demand as government consumer subsidies do.
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