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Benchmark copper <CMCU3> on the London Metal Exchange at $6,100
has climbed nearly 6 percent since crashing to a 14-month low of
$5,773 a ton on Aug. 15.
Prices of the metal used widely in power and construction hit a
4-1/2 year high at $7,348 a ton in June.
The sell-off gathered pace as U.S. President Donald Trump
escalated the trade dispute with demands to renegotiate trading
relationships and end what he calls unfair trading practices.
A key target in Trump's quest for more open trade is China, the
world's largest copper consumer, accounting for nearly half of
global demand estimated at some 24 million tonnes this year.
"Downside risks to copper come from the trade war intensifying,
particularly between the United States and China," CRU analyst
Charlie Durant said. CRU forecasts a 117,000 ton surplus this
year and larger one at 198,000 tonnes in 2019.
GRAPHIC: Copper market balance - https://reut.rs/2MxwQtj
"We're not seeing a huge amount of upside over and above
$6,200-$6,300 during the next 6 months because many of the
threats to supply we had at the start of the year aren't really
there anymore," Durant said.
Supply risks came from the contract renegotiations for workers
at major mines in top producing countries such as Chile and the
potential for disruptions from strikes.
Some contracts have already been agreed including at Escondida
in Chile, the world's largest copper mine, operated by BHP
Billiton <BHP.AX> <BLT.L>.
GRAPHIC: Chile copper output - https://reut.rs/2N4ztCs
Chinese demand is the key risk.
"The first wave of U.S. tariffs on $34 billion worth of goods
will have limited impact on Chinese copper consumption as the
goods on the list are not very copper intensive," said Eleni
Joannides, a senior research manager at Wood Mackenzie.
"The expansion of the list to $200 billion could raise the
impact to around 1 percent of total Chinese copper demand, as
many copper intensive goods are included in the extended list."
ELECTRIC VEHICLE STORY
Domestic demand in China, though slowing already, is likely to
be supported by interest rate cuts, easier credit and
infrastructure projects.
GRAPHIC: China copper scrap imports - https://reut.rs/2PLLI5l
The Chinese government's decision to impose a 25 percent duty on
U.S. copper scrap means local consumers will buy metal on the
global market.
"The tax on scrap is one reason behind the draw on stocks in
Shanghai," a fund manager trading copper said. The copper price
in Shanghai is at a large premium to the LME, even taking into
account shipping costs and taxes."
GRAPHIC: Copper stocks in warehouses monitored by ShFE -
https://reut.rs/2MV81H9
Stocks of copper in warehouses monitored by the Shanghai Futures
Exchange at nearly 150,000 tonnes have more than halved since
early April, while prices have climbed to around $7,200 a ton.
<CU-STX-SGH> <SCFc1>
"The price and demand is expected to follow China's
manufacturing figures," said Lara Smith, managing director at
Core consultants, adding she expects copper demand to rise to
25.8 million tonnes in 2020
"We see some growth in copper due to the whole electric vehicle
story as well as global infrastructure upgrades, especially in
China. This should add around 500,000 tonnes this year, rising
to around 800,000 tonnes in 2020."
(Reporting by Pratima Desai; editing by David Evans)
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