Copper Falls to Year 2018 Low on Renewed Trade Jitters -- Update

By David Hodari and Benjamin Parkin

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

Copper contracts for July fell 2% to $2.697 a pound at the Comex division of the New York Mercantile Exchange, set to close at the lowest point since July 14 last year.

Both industrial and precious metals were hit by widespread selling. Gold, which is also trading at the lowest point in a year, was down 0.9% at $1,216.80 a troy ounce. That move came partly thanks to the continued rise in the U.S. dollar.

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

President Donald Trump fanned fears of a global trade dispute Wednesday, by sticking to his threats to impose sweeping tariffs on automobile imports.

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 WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, rose 0.5%, having gained more than 5% 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 almost a fifth of copper's value in the space of six weeks. Copper futures have fallen 18% from near-multiyear highs in early June.

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 in China 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.

Write to David Hodari at [email protected] and Benjamin Parkin at [email protected]