The fresh lap of the trade wars between the United States and China has not impacted as much which fueled the prices of the Copper. This relief is the result of the China’s decision to target lower value of the US goods. The Trump administration announced duties on the Chinese goods and has targeted significant amount ($200 billion) and China, in retaliation, has announced tariffs on $60 billion of US imports. Initially, the imports from China would be charged 10% duty however, later it might go up to 25%. However, lower-than-expected negative impact from the trade wars might not sustain moving forward as the US might levy duties on $267 billion of Chinese imports. The US President has been warning China to surrender otherwise they would face tariffs. According to estimates, if the US imposes more tariffs it could negatively impact the economic growth of the United States.
The metal prices witnessed a downward momentum in 2018 primarily because of the trade worries between US and China and the expectations that it could hamper growth as well as demand of the metals. The Trump administration’s move of protectionism might backfire primarily because China might foster domestic production which would reduce its dependency on imports. A fall in the dollar index has now pushed the copper prices. When dollar depreciates, other currencies holders’ find it cheap to purchase commodities. Copper price has now moved up to its highest level in three weeks (Benchmark copper was up at $US6121 on the London Metal Exchange (LME)).
A Look at Australian companies
Rio Tinto Ltd (ASX: RIO) has operations in Copper and the company supplies products to China, US and Japan. The company is classified as a leader in the production of diamonds as well as natural coloured diamonds. The company has operations into 2 diamond mines:
- Diavik Diamond Mine (Canada)
- Argyle Diamonds (Australia)
In H1 2018, RIO posted earnings before interest, tax, depreciation and amortization or EBITDA amounting to $9.2 billion while its operating cash flow stood at $5.2 billion. In the long-term, the company expects to witness higher demand in regard to its premium products as well as robust growth globally.
BHP Billiton Limited (ASX: BHP) has been working in petroleum, copper, coal, Iron ore and other assets. In the copper category, the company witnessed total revenues amounting to US$14.7 billion in FY2018 while its underlying EBITDA during the same period was US$6.9 billion. In FY2019, the company is expected to experience production in copper in the range of 1,675-1,770 kt.
With the changing trend, the copper based stocks might gain traction once again.
The Income available from dividends remains attractive for many investors.
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