Tariff uncertainty exacerbates copper prices volatility

The monthly Metal Index (MMI) for copper showed a downward trend, declining by 4.23% from March to April. Based on current copper prices, analysts appear to be grappling with ongoing changes in trade policies.

**Uncertainty in Trade Policies Leads to Volatile Copper Price Trends**

Over the past few months, COMEX copper prices have experienced significant fluctuations. Prices initially hit an all-time high in March before plummeting in April. By mid-May, prices entered a sideways consolidation trend with oscillating movements.

Tariff issues continue to drive the market. This month, the market primarily reacted to the recent agreements reached between the US and China, as well as the US and the UK. The conclusion of these trade agreements seems to have alleviated concerns that the widespread tariffs announced in recent months might not be as extreme as anticipated, reigniting optimism about the global economy.

Although COMEX copper prices are currently basically stable, they appear to be increasingly inclined towards a downward trend. This is primarily because tariff agreements have not fully alleviated demand concerns that continue to plague the market.

**International Copper Study Group Predicts Supply Surplus**

The International Copper Study Group (ICSG) does not appear particularly concerned about supply issues. Contrary to previous concerns about an impending supply deficit in the copper market, the group expects the market to remain in a supply surplus in 2025 and 2026.

The group pointed out that uncertainty surrounding international trade policies could weaken the global economic outlook and negatively impact copper demand, with growth rates revised downward compared to the group's September 2024 estimates. As a result, the surplus is expected to more than double in 2025. Considering the surplus accumulated in 2024, this will leave a significant buffer for the market as trade policies evolve.

**US-China Trade Relations Continue to Cause Uncertainty**

Despite the continued tightness in the raw materials market, the outlook for global economic growth remains concerning. The US economy contracted by 0.3% in Q1.

The US-China trade agreement may have alleviated some market concerns about the impact of hefty tariffs on the world's two largest economies. However, uncertainty persists as the current agreement is set to expire in 90 days, and tariffs on Chinese goods remain as high as 30%.

**Falling Prices Accompanied by Rising Copper Inventories**

Global copper inventories resumed an upward trend in May, failing to provide any support for copper prices. Although the correlation between inventory fluctuations and copper prices is not strong, the rise in inventories suggests that demand conditions appear to be relatively stable. In recent months, due to tariff concerns, raw materials have been redirected to the US, leading to significant declines in inventory levels at the Shanghai Futures Exchange (SHFE) and the London Metal Exchange (LME).

However, despite the continuous decline in LME inventory, SHFE inventory has started to rebound. Coupled with the continuous increase in COMEX inventory, this has further dampened bullish expectations for copper prices.

**US Dollar Stabilizes**

Among other leading indicators affecting copper prices, the US dollar index appears to have stabilized, halting the decline that had pushed it below its long-term range in previous months.

The US dollar index is inversely correlated with copper prices. After recovering some of the losses accumulated in recent months, the index has begun to consolidate sideways. Although it has not yet rebounded to the levels seen at the beginning of the year, its slight rise in recent weeks seems to have put pressure on copper prices.

Investors remain divided over expectations for the future movement of the US dollar index. Speculation that the White House may lean toward depreciating the US dollar relative to other currencies has gained further traction, especially after the Trump administration pointed out that the strength of the US dollar comes at the expense of US exports. However, US officials subsequently clarified that exchange rate policy is not part of the ongoing trade negotiations.

Meanwhile, the US Fed has not yet conceded on the issue of interest rate cuts. Chairman Powell has been reluctant to cut interest rates since last year, as tariff announcements could impose further inflationary pressures on the US. Despite the recent Consumer Price Index (CPI) and negotiations with China potentially prompting the Fed to adopt a more accommodative policy, Powell has insisted on maintaining interest rates unchanged, citing "uncertainty."

If the US Fed cuts interest rates, it will further pressure the US dollar, potentially pulling it back below its current range. This could prevent further declines in copper prices.

(Wenhua Comprehensive)