During last weekend’s G20 summit, the US President, Mr Trump and the Chinese President Xi Jinping agreed on a 90-day ceasefire in their damaging trade dispute. Trump decided not to increase its tariffs to 25% starting on January 1st and but to keep them at 10% till March 1st.
On Monday and thanks to to this agreement, the copper cash price first rose from 6,237$ to 6,306$ but decreased significantly the next to days to reach 6,161$, its lowest in a week, following Mr Trump’s comments that he will revert to tariffs if the two side cannot resolve their problems before the 90-days truce ends as well as its comment on twitter that he is a “Tariff Man”.
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Therefore, what was supposed to be a good news was received by a significant amount of worries by the market which still doubts about a the possibility to see a trade resolution soon. Moreover, in order to secure the 90-day ceasefire between the two countries China agreed to a number of additional commitments.
China agreed to purchase a “very substantial” amount of agricultural, energy, industrial and other products to reduce the bilateral trade imbalance. However, the exact amount has not yet been agreed.
Nevertheless, the cease-fire helped to reestablish the usual relation between the cash and the 3-month prices. Historically, a higher 3-month price compared to cash price has always been observed as copper is generally traded using 3-month contracts and also for carriage reasons. However, these last weeks, the trend switched and the cash price was traded with a premium relative to the 3-month prices. This situation was due to the unpredictable decisions President Trump could have made, consequently, people were rushing and settled price for direct delivery. With the 3 months truce, we believe that the market will experience a “temporary stability”.
To secure the 90-day ceasefire between the 2 countries and the of Mister Trump, China agreed to a number of additional commitments.
China agreed to purchase a “very substantial” amount of agricultural, energy, industrial and other products to reduce the bilateral trade imbalance. However, the exact amount has not yet been agreed.
Regarding the inventory, the LME warehouse level remain low (As shown in the graph). No big change since beginning of November. The offer and the demand are therefore meeting quite well. The price did not experience any big variation due to the inventory.
http://www.china-briefing.com/news/us-china-trade-truce-90-days-g20-summit/
https://finance.nine.com.au/2018/11/30/07/46/copper-gains-but-trade-thin-ahead-of-g20
https://www.cnbc.com/2018/12/02/dow-futures-surge-after-trump-and-xi-agree-to-pause-the-trade-war.html
https://www.cnbc.com/2018/11/30/reuters-america-metals-copper-steady-as-all-eyes-turn-to-g20-meeting.html
https://uk.reuters.com/article/global-metals/corrected-metals-copper-eases-on-soft-china-data-ahead-of-g20-meeting-idUKL4N1Y53KI
http://www.infomine.com/investment/warehouse-levels/copper/1-month/