The prospect of Donald Trump returning to the White House has sent shivers down the spines of investors in copper stocks, with experts predicting a potential repeat of the turbulent period during his first term. JPMorgan analyst Bill Peterson has issued a stark warning, suggesting that Trump 2.0’s trade policies could deliver an even more devastating blow to the copper market than his previous administration.
Peterson’s concerns stem from the potential escalation of trade tensions between the United States and China. During Trump’s first term, the 2018 trade war imposed a 25% tariff on Chinese imports, triggering a significant downturn in metal prices and causing global mining stocks to plummet. Copper, often considered a bellwether for global economic health, bore the brunt of the impact as fears of waning demand and escalating costs rippled through the markets.
The United States Copper Index Fund (ETV: CPER) serves as a barometer for copper’s performance as a commodity, while the Global X Copper Miners ETF (COPX) tracks the equity of major copper miners, with top holdings including KGHM Polska Miedz SA (KGHPF), First Quantum Minerals Ltd (FQVLF), Teck Resources, and Freeport-McMoRan.
Peterson’s analysis highlights the alarming possibility of Trump 2.0 increasing tariffs on Chinese imports to a staggering 60%, a move that would significantly escalate trade tensions and amplify disruptions to global copper demand. While China’s share of U.S. imports has shrunk from over 21% in 2018 to under 14% in 2023, Peterson warns that the sheer magnitude of the tariff increase could exacerbate the impact on copper demand, potentially amplifying its negative effects by 40%.
The history of copper prices under Trump 1.0 serves as a chilling reminder of the potential consequences of trade wars. Initially, Trump’s 2016 election victory sparked optimism for copper stocks, fueled by expectations of deregulation and infrastructure spending. However, this optimism quickly dissipated as the trade war unfolded in 2018, leading to a steep decline in copper prices and related stocks. Peterson argues that a similar pattern could unfold under Trump 2.0, with an initial post-election boost followed by another painful downturn if tariffs escalate.
Adding to the uncertainty surrounding the copper market are upcoming Federal Reserve rate cuts. Historical data reveals that industrial metals like copper have historically underperformed following rate-cutting cycles, with the Bloomberg Industrial Metals Index typically falling by an average of 6% within nine months of cuts.
While Peterson remains optimistic about copper’s long-term prospects due to structural demand, he urges caution in the near term, acknowledging the significant macro risks looming on the horizon. The lessons learned from Trump 1.0 are stark: tariffs wreaked havoc on copper equities, and Trump 2.0’s aggressive stance could trigger a similar, if not worse, outcome for the sector.
As the U.S. presidential election draws closer, investors in copper stocks will be closely watching the unfolding political landscape and the potential impact on global trade. The stakes are high, and the future of the copper market hangs in the balance.