Background and Relevance of Donald Trump
Donald Trump, the President of the United States, recently imposed a 50% tariff on imported semi-finished and copper derivative products. This decision has sent shockwaves through the global copper market, causing a significant drop in copper prices.
The Steep Decline in Copper Prices
On Wednesday afternoon, copper prices plummeted by over 18.18%, reaching their lowest level since May 2019. The most actively traded copper futures on the Chicago Mercantile Exchange (CME) closed at $4.63 per pound, the lowest since May 12 when it was trading at $4.6210 per pound.
During the day, copper’s price dipped to a record low of $4.5360 per pound, marking an 20.4% decrease.
This decline is the most severe since October 26, 1989, when copper prices plummeted by 99%, according to Investing data.
Prior to the news, copper had gained 39.5% this year. However, following the announcement, its performance dropped to 14.98%.
The Arbitrary Nature of the Tariffs
According to Jesús Anacarsis López, Subdirector of Analysis at Banco Base, the price adjustment was due to confirmation from the White House about the copper tariff set to take effect next month. The new rules and focus on semi-finished products caught the market off guard.
“The tariff does not apply to copper ore or unprocessed materials; instead, it targets finished products made from copper, such as tubes, wires, bars, sheets, and copper tubing,” explained the expert.
Brian Rodríguez, a stock market analyst at Monex Casa de Bolsa, noted that while the market anticipated some tariffs on copper, they were applied to semi-finished products instead.
“The drop in metal prices is due to the tariffs being more focused on semi-finished materials rather than raw materials,” clarified the analyst from the bank.
Copper’s Diminishing Appeal as an Investment
Experts agree that copper might lose its status as a safe-haven asset for investors.
Key factors include increased reserves by companies, leading to decreased demand in the coming months, and the strengthening US dollar reducing copper’s appeal.
Rodríguez predicts that companies already have an oversupply of the industrial metal, which will naturally decrease demand and cause copper prices to fall further.
Anacarsis added that two factors will pressure copper prices: no tariffs on raw materials or unprocessed goods and the strengthening US dollar, which negatively impacts demand for safe-haven assets.
Stock Market Reactions
Following Trump’s significant tariff announcement on copper imports, stocks of mining companies listed on the stock exchange experienced substantial declines.
On Wall Street, Ivanhoe Electric, a mining company focused on high-quality copper and silver exploration and development, saw the most significant drop of 16.67%, trading at $9.25.
Freeport-McMoRan and Southern Copper, both mining companies, also suffered losses of 9.46% and 6.33%, respectively.
In the Toronto Stock Exchange, Taseko Mines, Hudbay, Ero Copper, and First Quantum Minerals saw drops of 7.79%, 6.55%, 4.71%, and 1.96%, respectively.
On the Mexican Stock Exchange (BMV), Grupo México, Mexico’s leading copper producer and one of the world’s largest, experienced a 3.7% decline.
Key Questions and Answers
- What caused the sudden drop in copper prices? The decline was triggered by US President Donald Trump’s imposition of a 50% tariff on semi-finished and copper derivative imports.
- Which mining companies were most affected by the tariff announcement? Companies like Ivanhoe Electric, Freeport-McMoRan, Southern Copper, Taseko Mines, Hudbay, Ero Copper, and First Quantum Minerals experienced significant stock drops following the announcement.
- Why might copper lose its appeal as an investment? Factors such as increased company reserves, decreased demand, and a strengthening US dollar could lead to copper losing its status as a safe-haven asset.
