LONDON (Reuters) – The two-year rally in industrial metal prices came to an abrupt end at the start of June. The London Metal Exchange Index, a basket of the LME’s major base metal contracts, hit a three-year high of 3499.6 in the first week of that month.
Prices then imploded over the ensuing weeks and the blood-bath has continued ever since. The Index stood at 2845.5 as of Wednesday’s close, back at mid-2017 levels when the rally was just gathering a head of steam. There’s no mystery as to what caused the crash.
The United States pulled the tariffs trigger on Chinese imports on June 15. China responded immediately in kind. Trade jaw-jaw had just become war-war. “The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the U.S., but of the world,” was the official Chinese Trade Ministry reaction.
Markets took China at its word and went into free fall as speculators, not least Chinese speculators, targeted the metals complex as a proxy for darkening growth prospects, not least Chinese growth prospects.
Politics has broken the economic cycle for the LME base metal pack, dislocating price from fundamentals and causing both market and supply-chain turbulence. Can metals escape the trade war blues in 2019? Don’t hold your breath. It’s instructive that the LME metal to fare best, or more accurately least worst, this year has been tin, down only four percent since the start of January.