China-U.S. trade war disrupting metal markets, sparking volatility: industry

[May 07, 2019]   HONG KONG (Reuters) - A trade dispute between China and the United States is the main issue causing volatility in metal prices and market participants are braced for stormy conditions to persist, industry sources said in Hong Kong this week.

A swift deterioration in China-U.S. trade talks hit global financial markets this week as investors faced the prospect of an escalation rather than an end to a 10-month-old trade war between the world's two largest economies.

China backtracked on commitments made during talks with the United States, prompting President Donald Trump to impose additional tariffs on Chinese goods slated to go into effect on Friday, top U.S. trade officials said on Monday.

The renewal of trade tensions has led to tougher trading conditions in metals markets, said David Wilson, a commodity strategist at Freepoint Commodities.

"This is very dramatic and obviously we now have this issue of we don't know what Trump will tweet next and this is making trading metals incredibly difficult," Wilson said, speaking at an LME Asia Week event in Hong Kong.

Last June, when the China-U.S. trade tensions first emerged, copper prices on the London Metal Exchange plunged 20 percent from a June peak near $7,350 per tonne to less than $6,000 in August.

On Tuesday, LME copper fell by 1.1 percent to $6.166 per tonne by 0937 GMT, holding just above 2-1/2-month lows hit on Friday. The exchange was closed on Monday for a holiday. [MET/L]

In an interactive poll of audience members in a conference session at LME Asia Week, 57 percent of those who responded said they expected trade tensions and political risk to be the number one issue impacting metals markets this year.

Fu Xiao, head of commodity markets strategy at Bank of China International, said more hiccups between China and the United States could not be ruled out as they move towards a deal and that uncertainty could roil metals markets further.

"The market shouldn't be too complacent when we hear headlines that the two sides are moving towards a deal. From a trading perspective, we should always keep in mind ... there could be lots of volatility heading towards us," she said.

There were some encouraging economic signals coming out of China, though, in the first quarter for metals demand, Ian Roper, general manager of Shanghai Metals Markets said.

"Certainly, so far this year, especially in demand, it's getting more positive in China and more bearish in the rest of the world. Positivity towards China is coming back quite strongly,” he said.

(Reporting by Tom Daly and Shivani Singh in HONG KONG; Editing by Tom Hogue)

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