Copper’s Hot Run Falters in 2018

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Copper just recorded its first quarterly decline since 2015—a sharp reversal by one of last year’s hottest assets that is fueling concerns among investors who look to the industrial metal as an indicator of global growth.

Futures prices for the red metal shed 7.9% in the first quarter after hitting a nearly four-year high in late December. While other commodities such as oil have continued climbing, copper has lagged behind, hurt by lukewarm economic data from China and anxiety over possible disruptions to international trade.

Because copper is used to build everything from electronic devices to houses, weaker global growth projections tend to curb prices. They are particularly sensitive to numbers from China, which accounts for nearly half the world’s copper consumption. Data from the country recently has shown slower manufacturing activity and a drop in copper imports.

Some investors also worry that U.S. tariffs on steel and aluminum and other levies against China could lead other countries to enact their own protectionist trade policies, leading to cautious activity by corporations world-wide. That could crimp demand for raw materials like copper.

“My biggest worry is this whole trade situation because it’s easy to start a trade war—it’s hard to put an end to it,” said Francisco Blanch, head of commodities and derivatives research at Bank of America Merrill Lynch.

Copper’s underperformance has been especially striking because other commodities from oil to cocoa have risen, pushing the S&P GSCI Index of 24 commodities to a 2.4% quarterly gain. Materials tend to move in tandem because some investors trade them in a single basket.

But this year, while reports of supply disruptions and political unrest in key producing regions have boosted oil, the possibility of miner strikes—some labor contracts are up for renegotiation—haven’t lifted copper as they did in 2017.

Hedge funds and other speculative investors also have turned more cautious on copper. After reaching their highest level ever last fall in Commodity Futures Trading Commission data going back to 2006, net bullish bets by the group have fallen to their lowest point since 2016.

Data from the International Copper Study Group recently showed that copper usage only slightly exceeded demand for a fifth consecutive year in 2017, prompting some analysts to say that it is unlikely a supply deficit would buoy prices by much.

Some analysts like Mr. Blanch still expect copper to bounce back as investors seek alternatives to a wobbling stock market and look for protection from rising inflation.

Copper prices remain 35% below their 2011 record, and some investors say seasonal weakness in the economic data early this year has created a buying opportunity for the metal. International Monetary Fund Managing Director Christine Lagarde recently reiterated the group’s January forecast that global economic growth will accelerate in 2018 to its fastest pace in seven years.

But others await clarity on trade policies, which analysts said could upend a market that is vulnerable to swings in investor sentiment.

“We’ve probably seen the peak for the time being” in copper, said John LaForge, head of real asset strategy for the Wells Fargo Investment Institute. “You just don’t have any momentum anymore.”

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com


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