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Chile Commodities August 2019

Chile: Copper prices slump to over two-year low in August amid global economic uncertainties

Copper prices lost ground in August, as escalating trade tensions and a slowing global economy weighed on demand for the red metal. Average copper prices fell to USD 2.59 per pound in August (equivalent to USD 5,705 per ton), from July’s average price of USD 2.69 per pound (equivalent to USD 5,941 per ton). Furthermore, copper prices were 5.7% lower than in the same month last year and down 3.9% on a year-to-date basis.

Copper prices hovered around two-year lows in August as the escalating trade spat between China and the U.S. has contributed to increasing policy uncertainty, slumping business confidence and a slowdown in global trade. Additional U.S. tariffs on more than USD 125 billion worth of Chinese goods came into effect on 1 September, prompting Beijing to retaliate by implementing its own tit-for-tat tariffs on an additional USD 75 billion of American exports. Moreover, global manufacturing activity has continued to falter, particularly in China, and investor sentiment is soft. This has dampened the demand outlook for the red metal of which China is a top customer, weighing considerably on prices.

Markets do not appear to have yet priced in tight supply, instead focusing on slowing global growth and trade war-related sentiment. Copper inventories in LME fell in August while the global refined copper deficit appears to be gradually increasing according to the International Copper Study Group (ICSG). In Chile, meanwhile, copper output rebounded marginally in July, after falling markedly in the first half of the year.

Looking forward, as refined production lags behind usage, amid limited production capacity and increasing demand for copper in new technologies including electric vehicles and green-energy projects, the medium-term outlook is bright. In the short-term, cheaper financing conditions in the world’s largest economies should offset concerns stemming from trade conflicts supporting global demand copper.

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