US-China trade war hitting commodity prices

Trade tensions between the US and China are hitting commodity prices as the global economy slows.

BHP CEO Andrew Mackenzie says the trade war has hit demand for copper. Picture: Aaron Francis

Running trade tensions between the US and China are starting to hit commodity prices as the global economy slows, according to major mining bosses.

BHP boss Andrew Mackenzie told shareholders on a retail investor briefing on Thursday the ongoing trade war had hit demand for copper, and its price, partly offsetting a strong year for the company on the back of a resurgent iron ore market.

Rio Tinto chief executive Jean-Sebastien Jacques told reporters on Thursday night that “the sooner it is fixed the better it is for everyone”, saying the ongoing tensions were having an impact on investment, which would flow into a hit on global growth.

And Iluka managing director Tom O’Leary also told shareholders the global slowdown was hitting demand for its zircon products, with business sentiment subdued in key markets in China and southern Europe.

“What we are seeing, as a consequence, the zircon market has been slightly subdued for the last little while,” he told The Australian.

“But in the longer term it’s not now, and hasn’t been for some time, a demand-driven story. The longer-term fundamentals for the zircon market are pretty strong given the grade decline-led production drop over coming years.”

Mr Mackenzie told retail shareholders BHP had not yet seen any “physical impacts” on the level of products the company was selling into key markets, but said the global trade tensions had had some knock-on effects in demand for copper.

“I would say that a number of people are a little nervous in the medium term in particular about what the impact could be if some of the trade disputes — particularly some of the ones that are happening between the US and China — continue,” Mr Mackenzie said. “Because, I think, of trade worries we’ve seen a slightly weaker demand than we would have normally expected for copper, and the copper price is lower than had this not been there we’d have said should be the case.”

But Mr Mackenzie said China’s stimulus spending had helped keep the iron ore price higher than BHP had expected, and helped slow falls in metallurgical coal prices.

“We’ve actually seen a bit of stimulus – that’s coming off now – within the infrastructure side of China which they probably put in place partly to mitigate the impact of potential trade sanctions and trade wars,” he said.

“That has increased the demand for steel, less so for copper, which is why we’ve seen less of a move in that copper price. It’s definitely improved the price of iron ore as well as sustaining our volumes, and it’s put a bit of a floor under the metallurgical coal price.”

Rio’s Mr Jacques told reporters on Thursday night the hit to sentiment would inevitably help slow growth, but he remained the “optimist in the room” and believed a solution will be found.

“I was in the US two weeks ago and I’ll be back to China on Sunday. I think everybody understands that it’s in the interest of everyone to find a solution to the current challenges,” he said.

“Lots of discussions are taking place, as far as I understand. I have no doubt it will be resolved, and the sooner the better because if you look at the GDP forecasts in the coming years it starts to be impacted by trade wars, and therefore the sooner it is fixed the better it is for everyone.”