Copper and iron ore prices have started the year well even as the US dollar index and government bond yields surged. Iron ore, which is used in the steell manufacturing industry, soared above $100 a ton, while copper rose to $9,135 a ton.
Strong China trade numbers
The main catalyst for the iron ore and copper prices is a trade report released on Monday by China. Data by the statistics agency showed that China’s trade surplus soared to a staggering $992 billion even as the economy slowed. This figure was 21% higher than a year earlier.
China exported goods worth $3.6 trillion, with those to the United States surging to over $525 billion. These numbers suggest that the Chinese economy is doing modestly well since exports are the second-biggest part of the GDP after consumer spending.
Analysts anticipate more iron ore and copper demand this year as China continues to implement its $1.4 trillion stimulus package. That stimulus mostly involves payments to local authorities who have become cash-strapped because of the real estate industry collapse.
China’s activities are important because it is the biggest consumer of copper, iron ore, and other industrial metals.
Copper and iron ore prices also jumped after reports showed that Donald Trump was moderating his talk on tariffs. According to Bloomberg, he is now considering raising tariffs gradually as his administration negotiates with top countries like China and the European Union.
Iron ore and copper are seen as barometers of the world economy because of their usage. Copper is widely used in the construction and electrical industries, while iron ore is used to make steel. Steel is used in small and large construction projects globally.
Analysts anticipate that demand for these metals will continue rising this year. China’s iron ore supplies will jump to a record high this year after rising by between 10 million and 40 million metric tones to 1.27 billion tons. Most of this import will be from Australia and Brazil.
Analysts also anticipate that iron ore prices will range between $75 and $120 this year, down from last year’s range of between $88 and $144.
According to S&P Global, copper demand will also be relatively high this tear. The company anticipates that China’s copper smelting production will continue doing well as the supply environment remains tight.
Will the Fed hit copper and iron ore prices?
A key wildcard for copper, iron ore, and other industrial metals is the Federal Reserve, which will likely maintain a more hawkish tone this year.
A good example of this is what is happening in the bond market where yields have surged to their highest levels in almost two years. The 30-year yield has moved to almost 5%.
Economists expect that the Fed will continue holding rates steady in the first part of the year and then start cutting in July this year. That’s because the job market is doing fairly well, while inflation has remained significantly higher than the 2% target for a while. Economists expect Wednesday’s data to show that the headline inflation rose to 2.7%, while the core CPI rose to 3.3%.
Iron ore and copper prices are impacted by the bond market. Higher yields mean that the US dollar index may continue rising to above $110. Metals like copper and iron ore are affected by a strong US dollar since they are traded using the currency.
Some of the top companies that will benefit from the ongoing price rises are popular mining giants like Glencore, Rio Tinto, BHP, and Vale.
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