Trump’s copper tariffs combine with sticky US interest rates to buffet markets

The bulk of the bad news came from the U.S. when the detail of copper tariffs were released, sparking a 21% collapse in the price of the metal on the New York commodities exchange, followed by promised interest rate cuts being kicked further down the road.

By applying a 50% tariff only to semi-finished products, the U.S. copper price fell into line with the London price plunging from US$5.59 a pound to US$4.40/lb.

Locally, the copper tariff confusion saw Sandfire initially fall from $11.14 to $10.28 before reclaiming some lost ground to trade around $10.62, perhaps on its way to the $12.25 tipped by RBC Capital Markets or the $13.35 from UBS.

Tariff confusion later spread with U.S. attacks on Brazil and India where punitive tariffs have been proposed by the U.S. President, Donald Trump, who is now likely to complain loudly about his central bank defying demands for an immediate interest rate cut.

For Australian investors it was a roller coaster week, mainly down but with a few upward bumps and with a recovery trend evident yesterday as the broadest indicator, the all ordinaries index, crept 0.2% higher.

It was a different story among the miners which suffered an overall fall of 5.6% as measured by the XMM index while the gold index was hit a little harder with a drop over the week of 6.4% as the gold price retreated to US$3269 an ounce with signs of a recovery to around US$3298/oz in late trading.

The weaker tone to the overall market had been predicted because share prices have been moving well ahead of market fundamentals, especially the all-important price-to-earnings (PE) ratio.

One calculation by Morgan Stanley is that Australian shares, as measured by the ASX200, are trading on a PE of 19.4 times earnings, miles ahead of the long term average of 14.8.

In other words, earnings in the current reporting season will have to be exceptionally good to justify a PE of close to 20 or share prices must fall to return to the long-term average, which is what seems likely to happen.

Mining sector leader Rio Tinto was a useful proxy this week for the wider mining market, reporting a 22% fall in profit for the half year to June 30 largely due to steep decline in iron ore earnings which overpowered better trading in copper and aluminium.

The net result from an investment perspective is that Rio Tinto shares look overpriced to most analysts with its fall from $123 earlier this year to last sales at $115 with another leg down to the consensus price of $110. It’s not a steep fall but a fall, nonetheless.

Boutique Sydney broker Barrenjoey disagrees with the caution attached to Rio Tinto, welcoming the half year result with a research note headed “The next chapter begins,” reflecting the change in corporate focus from iron ore to copper and aluminium, backing up that comment with a buy tip and price target of $121.

Iron ore, which had moved up early last month (July) resumed its downward slide to around US$99 a tonne, possibly on the way to the US$92/t of early June as Simandou, Guinea’s Pilbara killer, moves to within four months of its first shipment.

The sliding iron ore price has turned a spotlight on sector leader Fortescue which lost 51c this week to $17.86 while Mineral Resources flipped from being a recovery story with a price bounce of $32 late last week to sales this week at $28, down $4.

UBS continues to rate Fortescue as a sell, though largely because it is “fully priced” whereas RBC reckons MinRes will resume its recovery, rising to a target price of $36 as it masters road haul and transshipping challenges and locks in iron ore forward sales.

Gold, a commodity close to the wallets of many Australian investors, hit its price ceiling of slightly more than US$3400 an ounce for the third time, an ominous achievement in the week before the gold-focused Diggers & Dealers conference in WA’s gold capital Kalgoorlie.

On a bright note, before a reality check, a Canadian fund manager, Fidelity International, told clients that gold could still rise to US$4000/oz by the end of the year.

Catalyst Metals was a rare example of a gold stock swimming against the outgoing tide, rising by 20c to $5.10 after releasing solid June quarter production report from its Plutonic mine in WA and Henty in Tasmania. CG Capital Markets sees Catalyst rising to $7.90.

Other gold news and market moves included:

• Greatland Resources, down a thumping $1.82 (26%) to $5.19 as the gloss was blasted off the over-hyped new owner of the big Telfer mine in WA. Citi reckons the sell-off has been overdone, repeating a buy tip and price target of $7.

• Bellevue Gold fell by 7c to 82c after an early release of its financial performance to June 30. Macquarie told clients not to panic with a site visit for brokers before the Diggers conference expected to restore confidence and lift the share price to $1.30.

• Evolution Mining fell 43c to $7.07 but also attracted attention as a possible buyer of Greatland if its teething troubles continue.

• Olympio lost 3c to 14c despite reporting high grade gold assays from drilling at its Bousquet project in Canada, including 5.4 metres at 7.6 grams of gold a tonne and 7.9m at 6.2g/t.

• Ora Banda fell by 5c to 66c after releasing its June quarter production report. CG reckons the stock will bounce back to $1.05, and

• Vault lost 4c to 36c but could rise back to 75c if CG’s optimistic research report is right.

Lithium’s price bubble of two weeks ago faded this week, dragging local miners and explorers with it, led by Pilbara which dropped 26c to $1.60 and Liontown which fell by 17c to 78c and could keep falling if Morgans and Macquarie are right with their price tips of 56c and 55c, respectively.

Wildcat Resources was 4c weaker at 16c despite releasing a positive pre-feasibility study into its Tabba Tabba lithium project in WA.

Rare earth stocks had a mixed week but the sector did produce one of the few stars of the week in Viridis Mining which rose by 23c (25%) to $1.11 after raising $11.5 million to take the company to a final investment decision on its promising Colossus project in Brazil.

Lynas, the local rare earth leader, slipped 25c lower to $10.51 and continues to draw mixed reviews. UBS reckons Lynas will rise to $12.20 whereas Bell Potter sees a fall to $7.65.

Uranium stocks cooled significantly after a series of poor corporate reports and despite a steady uranium price of US$71 a pound.

Boss Energy led the way down with a heavy drop of $1.72 (49%) to $1.79 as risks emerged with the continuity of the Honeymoon orebody in South Australia. Citi maintained its optimism tipping a recovery to $2.70, though that price was a lot lower than a previous price forecast of $4.60. UBS has $3.50 as the Boss target.

Other uranium stocks were sold off as Boss fell. Paladin lost $1.06 to $6.20. Bannerman was 38c weaker at to $2.65, and Deep Yellow was down 26c at $1.52.

Other news and market moves of interest included:

• BCI Minerals rose by 1c to 35c after reporting solid progress with its Mardie salt project in WA. CG sees a future price of 50c.

• Chalice was sold off despite an upbeat June quarter report, slipping 26c lower to $1.56.

• Nimy lost 3c to 56c even after reporting high-grade gallium from drilling at its Block 3 project in WA.

• Develop was 17c weaker at $4.35 but could rebound to $5.30 according to Bell Potter which praised the company’s Woodlawn and Sulphur Springs projects and,

• Sun Silver was 14c weaker at 84c despite reporting high grade antimony assays from its Maverick Springs project in the U.S.