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Chile Commodities July 2019

Chile: Copper prices stable amid U.S.–China trade talks

Copper prices were broadly stable in July, as markets awaited the outcome of recent rapprochement between the United States and China. Average prices for the red metal clocked in at USD 2.69 per pound in July (equivalent to USD 5,941 per ton), edging up from June’s average price of USD 2.67. However, copper prices were 5.0% lower than in the same month last year, while on a year-to-date basis they saw a neutral variation.

In July, the truce between the U.S. and China failed to support copper prices, as analysts were skeptic that negotiators would be able to get across some of the thorniest issues; more so considering that Donald Trump promised by the end of the month a tougher approach on China if he is re-elected next year. In contrast, supply side constraints continued to bubble away in the background. In Chile, copper output contracted for a second consecutive month in July, while smelting charges tumbled to their lowest point in seven years, due to increased Chinese capacity, potentially leading to production cuts as margins get squeezed.

Markets do not appear to have priced in the tight supply story yet, with the focus staying on weaker demand expectations due to a slower Chinese economy. Nevertheless, our analysts expect prices to rise in the near-term, as supply-side pressures begin to bite. Moreover, cheaper financing conditions in the world’s largest economies should support global demand in the second half of the year. Over the medium-term, demand for copper should rise owing to the usability of the red metal in new technologies.

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