Are mining stocks still a good investment after tariff updates?

US Copper Prices Plunged on Tariffs Announcement

Has the famed “Dr Copper” lost its predictive power on the global economy? Over the past few trading sessions, copper prices plunged as the Trump administration scaled back levy on the much-used industrial metal. The commodity metal dived by more than a fifth, and closed at its lowest since April (see below).

What drive traders to dump the metal en masse? The culprit was the unexpected exclusion of refined copper from the new tariff announcement (original White House announcement here). Semi-finished copper products, however, will see new tariffs rates of 50 percent. Many copper derivative products will also suffered from new higher import duties.

Most interestingly, the latest price collapse squashed the fat pricing differential between US and London copper prices. For months, traders have bet that US will implement higher import duties on copper. The reason is national security. Copper, as stated in the White House notice, is the second most used commodity by the Department of Defense.

Sensing an arbitrage opportunity, major trading houses have quietly amassed large quantities of copper in the US. This trade, as reported Financial Times in July (£), was in the black by up to $300 million before the latest announcement. Unfortunately, copper’s largest weekly decline in decades wiped out most, if not all, arbitrage profits. Donald Trump giveth; Donald Trump taketh.

Steep fall in copper prices cast a negative outlook on copper miners and inexorably dragged their share prices lower.

The $1.85 billion Global X Copper Miners ETF (COPX) sank nearly 3 percent to close at one-month low. The next support is noted at $38 (see below).

Among the miners in the fund’s portfolio, Freeport McMoRan (FCX) slumped almost 10 percent. The downward dynamic kicked prices below $40.

In the UK, Chilean-based Antofagasta (UK:ANTO) also saw a negative reaction after copper’s massive slide. Prices affirmed £20 as resistance and corrected into £18.

Unless copper prices stabilise and rebound from here, clearly these miners may endure a period of short-term price turbulence with some downside risks.

Big Miners Announce Lower Profits

Another corporate trend that caught my attention was miners’ recent earnings announcement.

Unlike those Big Tech whose earnings are soaring due to AI/Cloud, Rio Tinto (UK:RIO) recently announced a 22 percent drop in half-year net profits. More worryingly, its net debt soared by 122 percent.

Glencore (GLEN), another larger copper producer/smelter, reported a 26 percent drop in copper production. The commodity powerhouse is actively streamlining its copper business. For Anglo American (UK:AAL), it is busily restructuring its entire business structure after repelling BHP’s takeover bid.

In sum, it is clear that large miners are struggling to resuscitate investor interest. Industrial commodity prices have remained stagnant despite the roaring stock market. Year-to-date best gainers are found in gold and other precious metals. But these metal rallies are driven primarily by economic fears, rather than greed. The commodity cycle is seemingly heading lower.

Look at those LSE-listed miner’s long-term share price below.

Two chart patterns stood out.

1. Most miners are either still downtrending or trading near their 5-year lows. This suggests weak market demand.
2. All miners peaked more than two years ago, near the peak of the previous cyclical upswing (2021-2022). Capital has been shifting out of the sector for some time.

Should We Buy Miners Now?

This begs the important question: Is the sector’s cyclical correction about to worsen or improve from here? Should we buy miners?

To reach a decision, there are three important macro and market factors to consider at this economic juncture.

One, will tariffs impact the sector further to the downside? On August 1, Trump renewed higher import duties on many countries. Imports from Canada, for example, is set to rise to a staggering 35 percent. This may reduce trade on physical goods, and with it, the demand for raw materials such as copper.

Two, will equity market correct? Many stock indices are becoming overbought after an unexpectedly strong rally during May-July. If they do consolidate in 3Q, traditionally the weakest quarter of the year, relative underperformers (stocks that underperform the general market) may lead the market lower. These miners are currently trading at the underside of their major trading ranges, so are not exactly in a position of strength.

Three, have miners flushed out all sellers yet? In the previous commodity bear market (during 2011-2016), many miners lost more than 70 percent of their market value. Anglo, for example, plunged from £33 to £3, a spectacular drop of 90 percent. Imagine what will happen if these miners report lower-than-expected profits in the next few quarters. Their share prices will come under significant pressure.

In summary, the market for industrial commodities (copper, iron, aluminium etc) remains in a staid position.

Trump’s assault on the global trade pattern is fuelling demand uncertainties. Along with it, lower industrial metals prices, since the modus operandi for many buyers is now ‘wait and see’.

For prospective buyers of these miners, this tactic should be adopted too since sector uncertainty is on the rise. Who knows, we may be able to get much lower prices on these global mining companies in the months to come.