LONDON METALS UNDER PRESSURE AS US-CHINA TRADE TALKS LOOM

The London Metal Exchange (LME) has become a barometer of global trade tensions, with metals prices oscillating sharply ahead of the May 2025 US-China trade talks. As tariffs on $2 trillion of bilateral trade hover near 145%, investors are bracing for further volatility. Copper, aluminum, and tin—critical to manufacturing and infrastructure—are trading at multi-year lows, reflecting a market caught between hope for de-escalation and fear of prolonged conflict.

The Metals Market: A Mirror of Trade Uncertainty

Base metals have been the canary in the coalmine for global trade. Copper—a “commodity with a PhD” due to its sensitivity to economic cycles—has fallen 7% year-to-date, dipping to $9,469 per ton in early May. Aluminum, a key component in automotive and construction, dropped 9% to $2,405 per ton. Even tin, buoyed by low inventories, has retreated 0.9% to $31,700 amid recession fears.

The disconnect between fundamentals and prices is stark. Despite declining LME inventories for zinc (down 41% in Q1) and robust demand for nickel in EV batteries, prices are under pressure due to macroeconomic headwinds. show a sharp decline since February, coinciding with rising tariff disputes.

Trade Talks: A High-Stakes Gamble

The May talks in Switzerland aim to address tariffs that have slashed cargo volumes between the US and China by 60% since late 2024. While no sweeping deal is expected, de-escalation could stabilize markets. A phased rollback of tariffs on non-strategic goods—such as copper or aluminum—would alleviate input costs for global manufacturers, potentially lifting prices.

However, risks loom large. China’s central bank has already injected 1 trillion yuan into its economy via a reserve ratio cut, yet its 2025 growth forecast was downgraded to 4.1%. Meanwhile, the Federal Reserve has delayed rate cuts, citing uncertainty over tariff impacts. reveals a steep decline since 2023, with further drops anticipated.

Sector-Specific Risks and Opportunities

• Automotive: Companies like BMW (+0.9% in early May) are cautiously optimistic, citing potential tariff easing by July. However, 25% US tariffs on steel imports threaten margins unless exemptions materialize.
• Pharmaceuticals: European firms like AstraZeneca (-2%) face regulatory and trade dual pressures, with the FDA’s new leadership complicating cross-border supply chains.
• Energy: Brent crude’s dip to $61.99/barrel reflects oversupply fears, but a trade deal could reignite demand for industrial metals tied to energy infrastructure.

The Bottom Line: A Delicate Balance

London-based metals firms are trapped between two forces: the structural demand from China’s stimulus and the immediate pain of trade barriers. J.P. Morgan’s bearish forecast—a 10-30% price drop in base metals—hinges on whether the US-China talks can curb recession risks. With a 60% probability of a US downturn, even a partial tariff rollback could be a lifeline.

Investors should monitor two key metrics:
1. LME Copper vs. Shanghai Futures: A narrowing gap (currently $10,761 in Shanghai vs. $9,533 in London) signals global demand normalization.
2. US-China Cargo Ship Arrivals: A rebound from April’s 60% decline would indicate trade flows stabilizing.

Conclusion: Metals’ Fate Hangs in the Balance

The May trade talks are a pivotal moment for London’s metals sector. A failure to reduce tariffs risks pushing prices further downward, with copper potentially falling to $8,300/ton—a 13% drop from recent levels—amid a recession. Conversely, even limited progress could spark a rebound, especially if China’s stimulus boosts manufacturing.

For investors, the path forward is clear: stay nimble. Short-term volatility is inevitable, but long-term gains depend on resolving the trade war. As one trader put it, “We can’t assume a deal, but markets have already priced in disaster.” The question now is whether the talks will deliver enough light to outweigh the darkness.