Metals Plunge on Renewed Trade Jitters

By David Hodari

LONDON--Metals prices took a battering Thursday as a fresh volley of tariff threats prompted investors to dump hard commodities.

Copper plunged 3.03% to $5,993 a metric ton in late morning trading, with a new wave of selling more-than-neutralizing Wednesday's tentative rally, and sending the base metal below the important $6,000-a-ton barrier to a new 12-month low.

Both the industrial and precious metals complexes were hit by selling across the board. Even gold, typically a haven investment, was down 0.84% at $1,216.91 a troy ounce. That move came partly thanks to the continued rise in the dollar over recent months.

President Donald Trump fanned fears of a global trade dispute Wednesday, by sticking to his threats to impose sweeping tariffs on automobile imports as a means by which to extract concessions from trading partners.

In addition to Mr. Trump's threats of "tremendous retribution" against the European Union for earlier tariffs, Larry Kudlow, the National Economic Council director, claimed that Chinese President Xi Jinping was refusing to compromise over Beijing's trade stance.

A Chinese foreign ministry spokesperson said Mr. Kudlow's comment "distorted the facts and made bogus accusations," according to CNBC.

The Chinese yuan fell 0.8% against the dollar as the WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, was last up 0.4%, having risen 6.1% over the past three months. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies.

The currency pressure has been a key factor in carving off more than a fifth of copper's value in the space of six weeks. London copper futures have plummeted almost 22% since their multiyear highs in early June.

"All the uncertainty and weight of the U.S. trade war is unnerving the market and you're seeing people getting out of risk. This is a pronounced selloff and it's very much a catch-a-falling-knife situation, " said William Adams, head of research at FastMarkets.com.

While traders were firmly bullish on copper at the beginning of the year, bets on falling prices are at their highest since January 2016, according to Alastair Munro, a broker at Marex Spectron in a note.

A combination of darkening macroeconomic sentiment, fewer-than-expected labor disputes, and unremarkable Chinese economic figures over recent months have soured investors on copper.

"This is not just a liquidation story of people cutting long bets, there are a lot of active short bets in the market," said Oliver Nugent, a commodities strategist at ING.

Prices suffered earlier this week after fixed-asset investment fell to a historic year-over-year low in June, with industrial production and credit expansion also undershooting expectations.

That cooling in credit expansion has been partly attributed to Beijing's attempts to rein in risky borrowing and lending. That has made credit harder to come by for some businesses.

"That's definitely in the background, and if China wobbles that's a huge double-whammy hit on copper," said ING's Mr. Nugent.

Some market participants also said that seasonally lower trading volumes have played a part in copper's recent volatility.

Among base metals, zinc fell 4.2% to $2,510 a metric ton, tin fell 0.61% to $19,410 a metric ton, nickel was down 2.63% to $13,305 a metric ton, aluminum fell 1.15% to $2,012 a metric ton, and lead fell 2.76% to $2,110 a metric ton.

Among precious metals, silver fell 2.1% to $15.25 a troy ounce, platinum was down 2.27% at $799.86 a troy ounce and palladium fell 1.68% to $894.25 a troy ounce.

Write to David Hodari at [email protected]