Copper: A Volatile Metal

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  Serge Nussbaumer
  Chefredaktor

On April 2, Donald Trump signed the 111th Executive Order (EO) of his second term in office. With his signature, the US President triggered a worldwide earthquake. The EO with the serial number 14257 provides for comprehensive tariffs on imports into the USA. It is true that Trump has only implemented what he had already threatened during the election campaign. However, the new tariffs – trading partners China and the EU will be burdened with 34% and 20% respectively – are higher than expected. The capital markets reacted with a dramatic sell-off. In addition to equities, many commodities also came under pressure.

Choppy price movement

This also applies to copper in particular: on the US commodity futures exchange Comex, the future on the most important industrial metal fell by up to 14% within three days. The contract had reached an all-time high just one week before Trump’s tariff hammer. US politics also played a role here. On March 20, the President signed EO 14241 on natural resources. Trump wants to accelerate the production of important raw materials in the USA. The relevant authorities are being asked to draw up lists of projects that can be approved particularly quickly. At the same time, the US government has expanded the list of critical raw materials. In addition to uranium, potash and gold, copper is now also on the list. The industrial metal is indispensable for prosperity and progress. Due to its special properties such as malleability, corrosion resistance and conductivity, copper is used in construction, vehicle manufacturing and electrical engineering. The energy transition has proven to be an additional driver in recent years.

Tipped market balance

In addition to Trump’s commodity decree, speculation that the US could impose tariffs on copper imports drove the metal to its most recent high. However, this assumption was not initially confirmed. Along with other critical minerals, pharmaceuticals, semiconductors and wood products, copper was left out of the round-up in the Rose Garden in front of the White House. However, the copper market has been upside down since April 2. Until then, events were dominated by the threat of a shortage. Now a possible drop in demand is causing maximum uncertainty. According to J.P. Morgan, the risk of a global recession has risen from 40% to 60%. It will be interesting to see how the mining sector assesses the situation. The International Copper Study Group (ICSG) will present its updated forecast on April 24.

Last year, the global copper supply was sufficient to cover demand for the first time since the financial crisis in 2009. Recently, the tide seemed to be turning again. Up to and including January 2025, the market was undersupplied for three consecutive months. In its autumn forecast, the ICSG expects a global copper surplus of just under 200,000 tons for the current year. It is clear that the USA is heavily dependent on other countries for this industrial metal. Around 40% of demand is imported. The world’s largest copper consumer is China. Beijing is not standing idly by in the face of the latest tirades from Washington and has imposed additional tariffs of 34% on goods from the USA.

Investing in copper

It is difficult to predict when the current chaos will be resolved. After all, Trump has already signaled a willingness to talk. A solution could lead to an upward trend reversal for copper. After all, US policy will not change the importance of the industrial metal. In addition, governments and central banks are likely to support the economy more than ever, especially after the recent turbulence. In addition to interest rate cuts, government economic stimulus programs are a possible means. Germany is already planning to invest billions in armaments, infrastructure and climate protection. China has been in the process of providing macroeconomic stimulus for some time.

For investors with a positive fundamental scenario, the timing could be particularly favorable for an investment in the most important industrial metal. There is no shortage of opportunities to play the “copper card”. Participation in the commodity price is offered by the tracker certificate CLPCIU. Here, UBS tracks the industrial metal using the CMCI index methodology. The entire maturity spectrum of the futures is covered. In addition, there is a permanent exchange of positions. In this way, the underlying tries to avoid the imponderables typical of commodity investments – the “contango trap”.

Global mining selection

Shares from the mining sector offer an alternative to positioning in the commodities sector itself. It is not surprising that these stocks have come under heavy pressure. Take Freeport McMoRan, for example: The mining group from Phoenix/Arizona is one of the world’s leading copper producers and the largest supplier in the USA. Following the tariff shock, Freeport McMoRan lost up to almost a quarter of its market capitalization within two days. The company, which operates one of only two copper smelters in the USA, is actually considered a beneficiary of Trump’s protectionist policies. According to CEO Kathleen Quirk, the inclusion of the industrial metal in the list of critical minerals could bring the company an annual tax benefit of more than USD 500 million. Of course, this is of little use if a recession causes demand to collapse.

For investors who do not assume the worst, the tracker certificate ZCOPMV on the Coppers Miners Basket could be an entry opportunity. Bank Vontobel combines Freeport McMoRan with 12 other mining stocks. In addition to copper producers from North and South America, these include two Chinese companies and the Swiss industry giant Glencore. The USD-denominated tracker matures in two years – let’s see how long Donald Trump’s list of executive orders will be by then.