How Trump’s China trade war is impacting copper stocks and what’s next
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The majority of ASX-listed copper stocks have lost ground in the past five weeks as President Trump’s escalating trade tiff with China starts to impact the copper price.
Copper is now down 16 per cent from its June peak and is now trading at about $US6180 ($8333) per tonne.
Analysts blame the emerging trade war and the rising US dollar for the tumbling copper price.
About 60 per cent of the 80 or so ASX stocks with exposure to copper have suffered declines of up to 35 per cent (see table below).
>> Scroll down for a list of ASX stocks with copper exposure
President Trump has expanded a list of goods imported from China that he wants to slap an extra 10 per cent tax on.
On that list is a bunch of copper products, along with other commodities – including zinc, which has also been hard hit with a 19.5 per cent price plunge.
Investment bank UBS says commodities will come under pressure from concerns over global growth.
“Tariffs increase the cost of trade,” analyst Glyn Lawcock said in a recent research note.
“This in turn lowers trade volumes, related industrial production and commodity demand, hence commodity prices.”
Explorers hit harder than producers
Here’s a list of ASX stocks with exposure to copper:
Scroll or swipe for full table. Click headings to sort
Since the copper price started heading south from June 8, Rex Minerals (ASX:RXM), which now has a market cap of roughly $26.6 million, has lost the most ground, dropping 35 per cent to 11c on Friday.
However, over the past 12 months the junior explorer is up 111.5 per cent.
The $107.8 million Red River Resources (ASX:RVR) has tumbled 27.6 per cent to trade just below 23c. Coppermoly (ASX:COY) also dipped around 27 per cent to 0.8c and is down 60 per cent over the past 12 months, giving it a market value of $11 million.
By comparison, the producers don’t seem to be falling as far.
Pure-play copper producer Sandfire Resources (ASX:SFR) has only dipped 3.8 per cent to $9.24, giving it a market cap of $1.4 billion.
The more diversified heavyweights like BHP (ASX:BHP) and Rio Tinto (ASX:RIO) have slipped just 2.3 per cent and 7.5 per cent, respectively.
Meanwhile, more junior producer Finders Resources (ASX:FND) – which was recently taken over in a hostile bid – has added 2.3 per cent to trade at 22.5c since the copper price started sliding.
Other players that have fared much better, perhaps because of their diversification strategy, are King River Copper (ASX:KRC) and Hardey Resources (ASX:HDY).
Despite its name, King River Copper is actually more focused on vanadium in Western Australia at the moment.
And Hardey has also just leapt into vanadium with plans to buy a past operating mine in Argentina.
Chin up, it might not be so bad
The situation is perhaps a little less dire for Australian copper players than their not-so-lucky American counterparts.
Australian stocks are being shielded somewhat from the full force of the burgeoning trade war with the sliding Aussie dollar against the greenback.
“The fall in the Aussie dollar against the US dollar has actually cushioned some of that blow,” Fat Prophets analyst David Lennox told Stockhead.
“So if you’re an Australian copper producer and you convert your US copper price into Australian dollars, obviously the lower it goes the more Aussie dollars you get for your copper.”
However, Mr Lennox does not see this being a short-term problem.
“We have no idea once these tariffs are in place if they will ever be lifted, so we are probably looking at a long-term adjustment being made to the flow of goods and services and with that the demand for commodities,” he explained.
The tariffs could be implemented as early as by the end of September.
Full blown battle unlikely
Tao Wang, China economist for UBS, expects the Asian heavyweight to “strongly protest the new US trade actions, but not respond proportionally, partly because China imports only about $150 billion from the US”.
While the situation is escalating, UBS does not see it becoming an “all-out trade war”.
Meanwhile, President Trump’s new tariffs on steel and aluminium exported from European Union countries to the US have prompted the EU to implement its own tariffs on US-manufactured goods.
This has forced motorcycle giant Harley Davidson to shift the production of its motorcycles for EU countries out of the US.
The company said the tariffs had increased to 31 per cent from 6 per cent, which would mean each motorcycle made for export to the EU would cost an extra $US2200.
“Now if we see that occurring and companies are shifting production away from the tariff source then we’re not going to see any significant change,” Mr Lennox noted.
“But if we see a shift and a decline in consumption – people aren’t buying as much because they are now dearer – then that’s going to be a significant headwind for commodities.”