Industrial metals have been on the back foot so far this year, with recent worries over a trade war between the US and China undermining already weakening sentiment.
Worries over higher US inflation and further interest rate hikes from the Federal Reserve have also been weighing on industrial metals markets of late, as has been the case with risk assets in general.
Following the strong gains of 2017, industrial metals were arguably due for a pullback.
At the same time, given the signs of continued acceleration in the global economy, there were also plenty of valid reasons to remain bullish.
On one level, it’s quite normal to see commodity prices moderate as the economic cycle becomes more mature, especially as supply increasingly catches up, or even overtakes demand.
However, along with economic developments, political events have also come to bear on the market.
President Trump’s move in December to cut taxes and raise fiscal stimulus provided a natural boost to industrial metals and risk assets in general.
Trump’s more recent decision to impose tariffs on US imports has had quite the opposite effect.
A positive supply/demand balance and improving global growth momentum helped copper prices to rise by around 30% last year.
With China as by far the world’s biggest importer of copper, moves by the country to impose import restrictions on certain types of scrap copper were also supportive for prices.
Year to date, however, it’s been a very different story, with copper prices having fallen from around $3.3 to $3.1 per pound.
Following a somewhat euphoric surge in copper prices in December, the market entered a consolidation phase, trading in a relatively narrow range early in 2018.
In early February, as concerns over rising US inflation and higher US interest rates weighed on assets, copper experienced a fairly sharp sell-off.
While copper then rebounded as February progressed, appearing to stabilise as the optimism over the global growth outlook again dominated the market, this proved short lived.
Copper prices sank again in March, this time coming under pressure from the Trump administration’s moves to impose tariffs on US imports amid fears of an all-out trade war with China.