One year ago, on July 19th to be exact, I delivered a keynote on the modern energy pivot to a global gathering of Cable and Wire Manufacturers. At the end of the talk I asked the audience of approximately 200 Senior Executives if they felt the price of copper would trend higher or lower from the ~$2.65 /lb it was on that day. The sentiment was almost unanimous that prices were going higher in the future. . 

I then asked members of the group (for my own curiosity) why then are the makers of cable and wire – the biggest users of the red metal – not more aggressive in absorbing extra quantities – now – rather than waiting and potentially paying higher prices in the near(ish) future? It was already accepted that commodities exited their bear market with the surprise election victory of Donald J. Trump.

View the 1 year chart on copper with emphasis on July 19, 2017.

Trade War Sabre Rattling Is Not Good For Raw Materials

All this talk of trade war is having an impact on investor sentiment. This echoes into the long term thinking of any business owner/manager, no matter if one considers a small mom and pop shop or the likes of Pirelli, Mitsubishi or Southwire. Imagine if millions of end users stockpiled just a little bit less of whatever raw materials they needed due to uncertainty in the future sales in their business? 

I believe that is exactly what is going on right now – and it makes practical and prudent sense. The hand-to-mouth mentality that is impacting most raw materials can only last so long – life will go on – someone will need to make the widgets and gizmos, industry will eventually re-calibrate by whom and from where. 

Is a recession now inevitable?  Will various PMi’s fall below 50 in the coming weeks/months? As these things manifest themselves, does that force Trump to change tack? 

For now, traders can make a fortune as selling begets selling into thinly bid summer vacation commodity markets,  exacerbated by hand-to-mouth raw material buying. When the tide turns, it will be these same participants who flip the trade and it will be fuelled by the millions of real end users who aim to secure longer term supplies.   

As an investor, I continue to take the medium to long-term view that there already exists a complete disconnect between asset prices and copper prices.