SMM8, March 31: 2018 copper prices ended a ferocious two-year rally since the end of November 2015. the biggest stumbling block was Trump's trade war, which had been expected to lead to a strike in global wage negotiations. The gradual disappointment of expectations following the agreement reached at some large mines this year is also the main reason why copper prices have lost momentum to rise.

After landing to impose tariffs on $16 billion in China, Trump once again threatened to launch a plan to impose tariffs on $200 billion worth of goods imported from China as soon as possible after the end of the public comment period next week. Before that, the landing of the US $34 billion and US $16 billion tariff measures triggered a huge shock in the market, and the metal market, including copper prices, plummeted. If 200 billion strikes again, will copper prices experience havoc again?

Vice General Manager of CUHK Futures / Jingchuan said that the current global trade war environment is more complex, from trade disputes to trade wars this process is a protracted war. It has continued to have an impact on the market from April and May to September this year. Sawing and negotiation is a long process, and the impact on the economy is certainly negative, especially on China, but the impact on the market is getting smaller and smaller in the process. Because the overall scale of trade and the situation of trade war are expected by the market. Once the $200 billion tariff is announced, it will still destabilize the market in the short term and have a disturbing effect on prices, not as much as it did in the first place.

For copper prices, the trade war directly affects the supply and demand of copper is not obvious, the impact of copper prices in two ways: first, the trade war will have a negative impact on the economy, the economy will be suppressed to a certain extent affect the price of copper.

The second is the exchange rate, the most obvious is the depreciation of the RMB, the appreciation of the US dollar, the global pricing of copper, based on the valuation of the US dollar, the rise of the US dollar has a suppressive effect on the copper price, and the depreciation of the RMB has little effect on boosting the copper price. The impact on domestic pricing of goods in the process of devaluation has been successful.

On the macro side, in addition to the trade war, the recent collapse in the exchange rates of Turkey and Argentina is also the focus of market concern. Turkey's economic confidence index fell to 83.9 on August 30 from 92.2 in July, the lowest level in nearly a decade. The lira fell below 6.7 against the dollar, breaking its lowest level since August 14. On the same day, Argentina's central bank raised its target interest rate (seven-day LELIQ) by 1500 basis points to 60 per cent in an effort to save the battered peso, up from 45 per cent and raising the reserve requirement ratio for private banks by five percentage points. But still powerless, after the announcement of the rate hike, the peso against the dollar is still rapidly expanding, once plummeted 20%, refreshing the intraday all-time low. Argentina's president has asked the International Monetary Fund (IMF) to lend $50 billion in advance to ease the country's financial crisis. There is widespread concern that Argentina will not be able to meet the $82 billion funding gap this year and next.

Emerging market currencies have fallen amid panic, the South African rand has tumbled, the Indian rupee and the Vietnamese dong have hit record lows, and the emerging market currency crisis is likely to intensify. Esther Reichelt, foreign exchange analyst at Commerzbank, points out that the market has not yet survived the lira crisis.

Will the currency crisis hit the financial markets and will copper prices be affected?

Jing Chuan believes that, under normal circumstances, some countries have a financial crisis, exchange rate collapse, will have certain fluctuations in the market, the market has a risk aversion mood, all kinds of goods repositioning is inevitable. After the recovery of the US economy after World War II, in the process of raising interest rates and locking tables, it will have a certain negative impact on the economy with high leverage and high debt. This is also normal, to distinguish between this transmission path, will not lead to a global financial crisis, if not, the impact on financial markets and non-ferrous metals is relatively weak. For example, Turkey and Argentina, this transmission path is not very smooth, its debt structure will not pry into the global financial market turmoil, spreading the global financial crisis. The size of these two economies is relatively small, and the transmission path is different from that of the United States and Europe, so it is mainly negative in terms of mentality for this market. Is a short-lived phenomenon, after which the market will be stable.

The United States is the first to enter the cycle of raising interest rates, and at the same time, China is taking measures to reduce leverage, cool the property market, crack down on environmental protection, and so on. China's economy is not so optimistic to many people. What is the future trend of China's economy? what is the impact on copper prices?

Jingchuan said that the global economy is recovering, the United States has entered a cycle of shrinking the table and raising interest rates, and China is also facing deleveraging and debt reduction, which is sure to depress the economy as a whole. In July, the country's regular session has begun to make some fine-tuning, with a moderate loosening of the currency under the debt restraint mechanism. The power of fiscal policy will support the economy in the second half of the year, and this situation will continue in the future. It is expected that the economy will be high before it is low. A new round of investment has begun to exert its power, which has a certain stabilizing effect on the economy. At present, China's economic risk is still in debt, deleveraging into stable leverage, debt is still on the high side.

Trade wars will have a negative impact on copper prices in the short term, but not very pessimistic. In the second half of the year, the capital construction will pull the power grid investment to a certain extent, and the airport construction will pull the non-ferrous metals to a certain extent. There will be no big risks to the economy.

In addition to the macro side, the topic of copper mine, which has been hyped for a long time, has obviously faded this year. Some large mines have reached an agreement, and other mines are more likely to reach an agreement. Is this bad for copper prices?.

Jingchuan analyzed that this year is a intensive period of mine labor negotiations, the possibility of success exists. But it is not a sudden balanced stimulus to the market. After the conclusion of the strike, it will be negative for the market in the short term, and on the whole, the impact on the market will be realized in the short term. The reduction in supply is an increase in the news. The strike did not continue, the copper mine continued to produce, and there was no increase in supply. If strike, in the balance of supply and demand, reduced supply, supply imbalance, but there is no strike, production is still continuing, there is no increase in supply to the market, its negative is at the news level. From the balance of supply and demand, the impact on the market is relatively limited. Judging from the global supply cycle, the copper mine has been recovering in recent years, and the blow to copper prices has been sustained, but it is only when the economy improves that the copper mine will continue to increase supply. Investment from exploration to production is cyclical, and the supply growth cycle will end in the second half of 2019. For now, it is not a sudden and massive increase in the supply of copper, it is a process. It has a relatively weak impact on the market and will not have a major impact.

Overall, the above factors exert some pressure on copper prices in the short term, especially now that the off-season of copper consumption is not over, short-term market pressure will keep copper prices on the low side, but they are more optimistic in the medium to long term. At present, copper prices in 46000 to 48000 yuan / ton is a better support position, the future is expected to return to 54000 to 55000 yuan / ton.

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