Copper Under Pressure on Trade Tension

By David Hodari and Benjamin Parkin

Copper prices were mostly lower as a trade dispute between the U.S. and China continued to foster concern about the health of the global economy.

June-dated contracts for the industrial metal closed unchanged at $3.0465 a pound at the Comex division of the New York Mercantile Exchange on Wednesday, steadying after a rout earlier in the week. The most-active July contract, however, fell 0.2% to the lowest close in a month.

Copper has fallen around 3% so far this week, reversing an early June rally that sent prices to a four-year high. The prospect that a trade war between Washington and Beijing could hurt global growth -- with both countries outlining tariffs on billions of dollars of each other's goods in recent days -- has weighed on prices for the industrial metal.

"Copper is very associated with macroeconomic fortunes," said Vivienne Lloyd, a senior analyst at Macquarie. "If the chance of a trade war is getting more serious and GDP growth is at risk, then copper is one of the instruments people will turn to, to express fears about the marketplace."

The trade uncertainty sparked a selloff across a range of metals and other commodities this week, with gold and aluminum also falling. The LMEX index of London Metal Exchange metals has fallen 4.4% in the past three days, with copper leading the losses, ING strategists said.

A rout in Chinese assets this week added to the pressure on the copper market, as China consumes around half of the world's red metal. The Shanghai Composite Index was down to its lowest level in almost two years on Tuesday as the Shenzhen A Share index shed 5.8%.

The lack of new twists in the recent trade dispute on Wednesday allowed copper and other commodities to steady somewhat, analysts said.

"It appears to be stabilizing," said Bob Haberkorn at RJO Futures. "Keep an eye on that $3 level as support."

The U.S. dollar rose this week, making dollar-denominated commodities like copper more expensive for holders of other currencies. The WSJ Dollar Index, which measures the currency against a basket of 16 others, was little changed on Wednesday morning after rising on Tuesday.

Gold prices for June, meanwhile, fell 0.3% to $1,271.20 a troy ounce, the lowest close this year. The strength in the dollar has pressured the precious metal market, undermining gold's traditional role as a haven asset that rises at times of heightened geopolitical tension.

Investors were watching for speeches from Federal Reserve Board members and any further comments from the U.S. and Chinese governments over trade.

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