Tariff Uncertainty Fuels Copper Price Volatility
Via Metal Miner
The Copper Monthly Metals Index (MMI) retraced to the downside with a 4.23% decline from March to April. Looking at copper prices today, analysts seem to be struggling with ongoing trade policy shifts.
Comex copper prices have experienced wild swings over the past few months. First, they hit a new all-time high in March before plunging in April. By mid-May, they entered into a shaky sideways trend.
Source: MetalMiner Insights
Tariffs continue to drive the market. This month, markets have mostly been reacting to the U.S.'s most recent deals with China and the UK. Both appeared to ease concerns that the broad-based tariffs announced over recent months may prove less extreme than expected, resulting in renewed optimism about the global economy.
While mostly stable, the bias appears increasingly to the downside for Comex copper prices today. This is mainly because tariff deals have yet to fully ease the demand concerns that continue to plague the market.
The International Copper Study Group counts itself among those not particularly concerned about supply. Contrary to previous worries that the copper market was on the verge of growing deficit, the ICSG expects the market to maintain its surplus status in both 2025 and 2026.
The group noted 'Uncertainty surrounding international trade policy that is likely to weaken the global economic outlook and negatively impact copper demand, usage growth rates have been revised down compared to the Group's September 2024 forecasts.' As a result, the surplus expectation more than doubled for 2025. Considering the surplus accumulated during 2024, this will leave the market with a significant cushion as trade policy evolves.
While the raw material market remains tight, global growth prospects remain a concern. The U.S. economy shrank by 0.3% in Q1. Meanwhile, deflation remains a lingering problem for China, which is struggling to lean on domestic demand amid trade barriers in the U.S.
The U.S.-China trade deal may have eased some market concerns about the impact of steep tariffs on the world's two largest economies. However, uncertainty lingers as the current agreement will expire in 90 days and still leaves a steep 30% tariff on Chinese goods.
Global stocks returned to the upside in May, offering no support for copper prices today. While inventory fluctuations do not boast a strong correlation to copper prices, the rise suggests demand conditions appear relatively stable. Both SHFE and LME inventory levels experienced considerable drawdowns over recent months as material moved to the U.S. amid tariff concerns.
Source: MacroMicro
But while LME stocks continue to decline, SHFE stocks have started to rebound. This, alongside the continued rise in Comex stocks, has added a further drag to bullish expectations for copper prices.
Among the other leading indicators for copper prices, the U.S. dollar index appeared to stabilize, halting declines that pushed the index below its long-term range in previous months.
Source: MetalMiner Insights, Chart & Correlation Analysis Tool
The index, which trades inversely to copper prices, has started to move sideways after regaining some of the losses accumulated in recent months. While it has fallen short of rebounding back to where it stood at the start of the year, the modest increase has seemingly weighed on copper prices over recent weeks.
Investor expectations remain mixed on the future direction of the index. Speculation that the White House might favor a weaker dollar relative to other currencies added considerable weight, particularly after the Trump administration noted the strength of the U.S. dollar has come at the expense of U.S. exports. However, U.S. officials have subsequently clarified that currency policy is not part of ongoing trade negotiations.
Meanwhile, the Federal Reserve has yet to blink with regard to rate cuts. Chairman Jerome Powell has remained reluctant to cut rates since last year, as tariff announcements have risked further inflation pressures in the U.S. While the most recent CPI and negotiations with China could incentivize a softer stance from the Fed, Powell has repeatedly cited 'uncertainty' as reason to hold rates steady.
A cut from the Fed would add further pressure on the U.S. dollar, potentially dragging it back below its current range. This could stem further losses for copper prices today, tomorrow, and in the near future. Read MetalMiner's market outlook and copper price forecast here.
By Nichole Bastin
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