Rising US-China tensions halt copper price rally

Red metal back in the red

Industrial metals fell back on Friday as warnings about rising tensions between the world's two largest economies overshadowed a massive economic stimulus announced by Beijing, the world's top commodities consumer.

Copper trading in New York fell by 3.6% to $2.37 a pound ($5,225 a tonne) in lunchtime trade, halting a rally that saw the bellwether metal gain nearly 20% from lows hit in mid-March.

China's move this week to tighten its grip on Hong Kong torpedoed any hopes of a promised phase two trade scheduled for later this year

Covid-19 dealt a serious blow to the Trump administration's January trade deal, which included promises by China of hundreds of billions of dollars of US imports of goods and commodities, particularly oil and gas.

China's move this week to tighten its grip on Hong Kong torpedoed any hopes of a promised phase two trade scheduled for later this year; instead a new set of sanctions is now likely in response.

Peter Boockvar, chief investment strategist at Bleakley Advisory Group told CNBC that Trump "is listening to his hawkish advisors like trade advisor Peter Navarro":

"The problem now is the global economy was much better when we had this tariff stuff before and was able to absorb it, and now we're much less able to absorb it.

"Trump is acting out and deflecting and blaming ahead of the election about who got us into this pickle. China is now the archery target for this virus and Trump is going to let the world know: 'It wasn't me, it was them.'"

China's "new infrastructure"

Weakness in the copper price came despite an announcement on Friday of a Chinese stimulus package similar in size than the nearly $700 billion pumped into the economy during the 2009 global financial crisis.

In a note, Capital Economics says that the economic measure were more aggressive than expected and points out how China's physical infrastructure expanded since 2009:

The network of paved roads has almost doubled in size and the freeway network has more than doubled. China has built a high-speed rail network and expanded the regular network by a third. Ninety airports have been built. And developers have built 75 million urban homes.

Given its widespread use in transportation, electrical grids, manufacturing and construction, copper demand could receive a massive boost by the plan, which is heavily focused on infrastructure spending.

Moreover, a large chunk of the investment is destined towards so-called "new infrastructure" mentioned by Chinese Premier Li in today's announcement, says Capital Economics.

That refers to, among other things, building out 5G networks, "next generation information networks" and charging facilities for electric cars.

All of which need copious amounts of copper.