Chinese authorities confirmed yesterday that they expect to grow at a 5% rate this year, despite the trade war driven by the United States.
By C. Muñoz-Kappes y A. de la Jara
Copper prices registered a strong surge on Wednesday, pushing the U.S. dollar to its lowest level in five months.
The metal’s value increased for two reasons. First, after U.S. President Donald Trump hinted in his speech before Congress at new tariffs, including on basic metals. And second, due to China’s favorable economic projections despite trade levies.
Copper, Chile’s main export, was listed on the London Metal Exchange with a 1.55% increase, reaching $4.33 per pound, its highest level in just over three weeks.
On Tuesday night, the U.S. president stated—without much clarity—that a 25% tariff would be applied to copper imports.
Although the Department of Commerce could take months to finalize its investigations, Trump suggested that he had already decided on a 25% levy similar to the executive orders related to steel and aluminum (set to take effect on March 12).
“I have also imposed a 25% tariff on foreign aluminum, copper, wood, and steel because if we don’t have, for example, steel and many other things, we won’t have an army, and frankly, we won’t have… we simply won’t have a country for long,” Trump said in a speech before Congress.
On March 12, the 25% surcharge on steel and aluminum is set to take effect. A tariff on copper is being considered (see B1), a raw material that has gained importance recently, especially due to its use in the electric vehicle industry.
Since his return to the White House, Trump has advocated for tariffs to correct what he sees as unfair trade deficits for Washington, to attract foreign capital investment, and above all, as a pressure measure against Mexico, Canada, and China to reduce the flow of fentanyl entering U.S. borders.
Deficit Position
Julius Baer Bank and JP Morgan have downplayed the potential significant impact of the trade war driven by Washington on Chile’s primary export, as the U.S. remains in a production deficit, and Chile is the country’s main supplier of the mineral (covering 70% of U.S. demand).
In this context, experts attribute the rise in copper prices to ongoing purchases of the metal while Trump has yet to finalize tariffs on it.
“The increase in copper prices following Trump’s speech is mainly due to speculation and preemptive buying, as market players are trying to purchase and ship copper to the U.S. before the potential 25% tariffs come into effect. This has created higher demand,” explains Juan Carlos Guajardo, executive director of Plusmining.
So far in March, copper prices have risen by 1.9%, registering a nearly 10% increase in this first quarter.
In copper transactions, New York saw a 5% price jump, significantly above global thresholds (see box).
Fuente: El Mercurio – Valor futuro, dólar interbancario y Cochilco, la rueda.
The China Effect
The surge in copper prices, which, if sustained, could slightly alleviate Chile’s strained fiscal accounts, is also supported by expectations of higher demand from China.
Chinese authorities stated yesterday that they expect the country to grow at a 5% rate this year, despite the trade war driven particularly against them by the United States.
At the opening of China’s most important political summit of the year, the National People’s Congress (NPC), Premier Li Qiang confirmed that the deficit target would be raised by one percentage point to 4% to support growth.
British consultancy Capital Economics called China’s official target “ambitious.”
“This figure reflects that the authorities are determined to support growth in a context of external uncertainties and trade tensions with the U.S.,” said Raymond Yeung, chief economist for China at Australia & New Zealand Banking.
“China is the world’s largest copper consumer, so its growth projections are a key factor for global demand,” notes Guajardo.
Wave of Speculative Buying
For copper industry experts, the rise in the metal’s value is a market anticipation of a potential shortage in the U.S. “This led to an immediate increase in metal demand and a wave of speculative buying, driving prices up,” said Ricardo Bustamante, deputy research manager at Capitaria.
He explains that uncertainty over the long-term effects of the measure suggests that Trump encouraged buyers to acquire copper before tariffs take effect. “The possibility of disruptions in the global supply chain also contributes to upward market pressure,” he added.
At the same time, this scenario has created “higher demand in the U.S. market, which has driven prices up,” says Juan Carlos Guajardo, executive director of Plusmining.
“A 25% tariff was clearly not what the market expected before those comments, and now traders are scrambling to adjust the price to the correct level, whatever that may ultimately be,” said Ole Hansen, head of commodity strategy at Saxo Bank AS, to Bloomberg. “The disruption in global trade flows is very real,” he added.
Following New York (Comex)’s more reactive market dynamics, copper prices in that exchange have risen more than on the London Metal Exchange after Trump’s announcements. According to Bustamante, the gap between the two markets has widened, with New York registering copper price quotations up to 11.5% higher than in London.
Guajardo anticipates that China’s growth projections could further boost copper demand in the medium term.
Source: El Mercurio