ASX copper miners brush off latest Chinese tariff threat

Shares in ASX copper miners are outperforming today even as reports confirm China just added Australian copper to its list of “banned” imports.

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Shares in ASX copper miners are outperforming today even as multiple reports confirmed China added Australian copper to its list of “banned” imports.

The Sandfire Resources Ltd (ASX: SFR) share price jumped 3.4% to $4.27 and the OZ Minerals Limited (ASX: OZL) share price added 1% to $14.82 during lunch time trade.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) is struggling at breakeven while the Fortescue Metals Group Limited share price and Rio Tinto Limited (ASX: RIO) share price tumbled.

ASX copper miners the latest victims of China’s tantrum

The outperformance of our copper miners comes even as Bloomberg reported that China is ordering its traders to stop buying at least seven types of Aussie commodities.

On top of Aussie copper ore and concentrate, other imports being targeted include wine, coal, barley, lobsters, sugar and timber.

It’s the clearest sign yet that relations between Australia and its most important trading partner are continuing to deteriorate.

Why copper is holding firm despite trade threat

But Sandfire Resources is downplaying the risk to its earnings from the copper ban. It believes it can find other buyers for its copper, reported the Australian Financial Review.

What’s more, the miner’s cash pile that stands close to $400 million will buy it time to seek out new markets.

OZ Minerals is also brushing off the threat. Its chief executive Andrew Cole pointed out that China can’t produce its own copper, unlike coal or wine. This means, China will still need to import the red metal from somewhere, if not Australia.

If the trade tension drives the price of copper higher, Chinese authorities may very well have to swallow their pride and reverse the decision.

China is world’s largest importer of copper

China buys around half of Australia’s copper exports and is the largest importer of the commodity in the world, according to data from Statista.

The Asian giant purchased US$40.8 billion worth of copper in 2019, which is more than the next five largest importers.

Outlook for ASX copper miners still look bright

Further, the COVID‐19 pandemic may be providing a net benefit to copper producers. While global factory production may have tumbled in the near-term, copper exports from Latin America may be impeded for years.

For instance, production at Escondida, which holds the world’s largest copper reserves and is co-owned by BHP Billiton Ltd (ASX: BHP) and Rio Tinto, may not recovery to pre-COVID levels for three years.

In the meantime, industrial production (particularly in China) is starting to recover.

Cost blowouts and longer-than expected lead times in getting new copper mines up and running will further crimp supply.

This explains why analysts remain upbeat on the outlook for copper as the price of the commodity improved 0.2% to US$3.09 a pound today despite news of the Chinese tariff.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, OZ Minerals Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

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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