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Copper miners set to jump as commodity makes best gain in 5 years

Bulls aren’t intimidated anymore by the Trump trade war even as trade relations between the US and China took a turn for the worse on the weekend with Chinese officials refusing to meet with their US counterparts to settle their US$360 billion tariff tiff.

That didn’t stop the copper price in London from enjoying its best one-day gain since May 2013, according to Reuters.

The London Metal Exchange (LME) copper price jumped an impressive 4.6% to US$6,363 a tonne on Friday (UK time) and is up 6.5% for the week.

There was a palpable sense of relief that China didn’t retaliate as hard as the market expected after US President Donald Trump slapped a 10% tariff on an additional US$200 billion worth of Chinese imports on top of the US$50 billion he had initially targeted.

European equities finished Friday higher as well, and while the US S&P 500 dipped slightly on the day, it still finished up 1% for the week.

ASX-listed copper miners like OZ Minerals Limited (ASX: OZL), Sandfire Resources NL (ASX: SFR) and Independence Group NL (ASX: IGO) are set to jump higher with the red metal on Monday morning as a drop in copper inventories are also bolstering the bullish market sentiment.

Stockpiles of copper at LME warehouses nearly halved from March this year to 216,000 tonnes, while inventories of the metal held at Shanghai Futures Exchange warehouses fell 17.5 per cent to 111,029 tonnes in the week to Friday.

A further tailwind came from the US dollar, which weakened over the week as risk appetite returned to the global market. The greenback and commodity prices tend to move in opposite directions and it’s significant that copper is rallying as it is seen as a lead indicator for global growth – hence the title Dr Copper.

But don’t mistake the bounce as anything but a relief rally. Fundamentally, nothing has changed my view that the risks are building. If China and the US can’t find a way to make peace, and it’s increasingly looking like things will get worse on the global trade war front before they get better, the global economy could slip into a recession.

Copper is particularly sensitive to economic activity and any further step-up in tension between the two biggest economies will bring its rally to a quick end.

In contrast, bulks like iron ore and coal are less sensitive to economic gyrations as they are used primarily in infrastructure construction or power generation.

I am bullish on Oz Minerals and Independence Group but I see BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) as a more attractive option in the resources space right at the moment.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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