Commodity prices tumbled on Wednesday as trade tensions between the world’s two biggest economies went up a notch, hitting the share prices of big mining companies and oil producers.
Metals from copper to zinc fell after US president Donald Trump started a process that could see tariffs imposed on a further $200bn of imports from China. Crude oil was also under pressure after Opec producer Libya announced the reopening of key export terminals.
Following Mr Trump’s election victory in November 2016, commodities rallied as investors warmed to his pro-business agenda and plan to deliver a huge infrastructure programme. Now, they are falling on fears his campaign to rebalance trade could slow global growth, even if some analysts think the sell-off has been overdone.
“We view the White House’s announcement of an additional $200bn round of tariffs as significant in escalating the tensions closer to a full-blown tit-for-tat trade war,” said Bart Melek, head of commodity strategy at TD Securities.
China is the biggest consumer of almost all metals, many of which are turned into products for export. As well as the trade tensions, investors also are worried about slowing growth in China as the government seeks to rein in lending and defuse a credit bubble.
Copper, a metal widely used in consumer appliances such as refrigerators that could be hit by the latest tariffs, fell 3 per cent to $6,137 a tonne on the London Metal Exchange, touching its lowest level in a year.
Nickel, which is used in stainless steel and electric car batteries, slid 3 per cent to $13,570, while zinc, used to rustproof steel, dropped as much as 6 per cent to $2,500 a tonne, pushing prices on the LME to their lowest level since June 2017.
That reflected the knock-on effects of heavy selling of zinc in China. Traders said the holder of the huge copper bet on the Shanghai Futures Exchange was shorting zinc in an effort to offset some of his losses.
The commodity market sell-off also weighed on mining stocks. Glencore, a big producer of copper, zinc and nickel, fell 3.5 per cent to 315p, while Anglo American lost 3.6 per cent to 1,660p and Rio Tinto shed 3.1 per cent to 4,014p.
Colin Hamilton, analyst at BMO Capital Markets, said the sell-off in metals was overdone, given that the world economy was still likely to grow in the second half.
“We would now argue base metals are pricing in a rapid deceleration in global growth into the second half of the year, and while we are nervous on emerging markets ex-China, overall we still expect positive demand growth, if at a lower rate,” Mr Hamilton said.
But Mark Hansen, chief executive of Concord Resources, a physical commodity trader based in London, said it was unlikely that commodity prices would recover quickly. “I think we have seen the highs for the year,” he said.
Oil prices also fell, with Brent crude dropping as much as 2.5 per cent to below $77 a barrel after Libya’s internationally recognised state oil company said it was reopening four key export terminals, which have been handed back by rival factions in the east.
Separately, Opec on Wednesday said Saudi Arabia had raised production by more than 400,000 barrels a day in June as it moved to try and cap a price rally and replace production from struggling members of the group.