It's going to be an ugly day on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) as trade war and recession fears have again roiled overnight markets in the US and Europe.
ASX miners are likely to be among the worst hit (apart from gold producers) as commodity demand is correlated to economic growth – particularly in the case of copper given its wide-spread use in industrial production.
That won't be good news for our mining giant BHP Group Ltd (ASX: BHP) and mid-tier producers like the OZ Minerals Limited (ASX: OZL) share price and Sandfire Resources NL (ASX: SFR) share price.
Copper can survive a trade war slowdown
But trade war or no trade war, the downside for the red metal may not be as great as some might think – not according to the analysts at Credit Suisse.
Even if China's demand for copper was flat (the country is the world's largest consumer of the metal), the market would be balanced due to supply disruptions from several major copper producers.
These include Glencore's troubles in Central Africa, Freeport and Codelco transitioning big open pits to underground, and a rain storm in the Andes early in the year that slowed mine output, noted the broker.
"We are not China bulls, but while property construction continues and the upgrading of the electrical grid continues, the worst we can expect near term is nil growth," said Credit Suisse.
"A severe 2% drop ex-China would be 1% globally or a 240kt copper demand cut. The size of any surplus and price deterioration will be controlled by supply growth."
High costs a saving grace
What's more, the high cost of developing new copper projects will also help put a floor to the copper price. Rio Tinto Limited's (ASX: RIO) well publicised travails with the Oyu Tolgoi mine in Mongolia is one obvious example, as is the Cobre Panamá mine owned by Toronto-listed First Quantum Minerals Ltd.
"Excluding these sticky mines, we find only 430kt that might consider," explained Credit Suisse.
"The next price resistance line might be US$2.30/lb where the price stopped in 2016. There is 830ktpa that might consider closing in that section, which might be sufficient to stop any major copper surplus."
What this effectively means is that US$2.30 a pound may prove to the low for the cycle, even if the trade-war induced global slowdown were to worsen.
The current copper spot price is around US$2.57 per pound, which implies that the downside is a little more than 10%.
Any fall will hurt ASX shareholders in copper-exposed stocks, but at least there doesn't seem to be an Armageddon scenario for the commodity.
