LONDON – Copper prices have recovered from a recent rout, but the possibility of the trade dispute between the Washington and Beijing escalating and its potential to crimp demand in China, the world's top consumer, is expected to cap gains.

Benchmark copper on the London Metal Exchange at $6 100 has climbed nearly 6% since crashing to a 14-month low of $5 773/t on August 15.

Prices of the metal used widely in power and construction hit a four-and-a-half year high at $7 348/t in June.

The sell-off gathered pace as US President Donald Trump escalated the trade dispute with demands to renegotiate trading relationships and end what he calls unfair trading practices.

A key target in Trump's quest for more open trade is China, the world's largest copper consumer, accounting for nearly half of global demand estimated at some 24-million tonnes this year.

"Downside risks to copper come from the trade war intensifying, particularly between the United States and China," CRU analyst Charlie Durant said. CRU forecasts a 117 000 t surplus this year and larger one at 198 000 t in 2019.

"We're not seeing a huge amount of upside over and above $6 200 to $6 300 during the next 6 months because many of the threats to supply we had at the start of the year aren't really there anymore," Durant said.

Supply risks came from the contract renegotiations for workers at major mines in top producing countries such as Chile and the potential for disruptions from strikes.

Some contracts have already been agreed including at Escondida in Chile, the world's largest copper mine, operated by BHP Billiton .

Chinese demand is the key risk.

"The first wave of US tariffs on $34-billion worth of goods will have limited impact on Chinese copper consumption as the goods on the list are not very copper intensive," said Eleni Joannides, a senior research manager at Wood Mackenzie.

"The expansion of the list to $200-billion could raise the impact to around 1% of total Chinese copper demand, as many copper intensive goods are included in the extended list."

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Domestic demand in China, though slowing already, is likely to be supported by interest rate cuts, easier credit and infrastructure projects.

The Chinese government's decision to impose a 25% duty on US copper scrap means local consumers will buy metal on the global market.

"The tax on scrap is one reason behind the draw on stocks in Shanghai," a fund manager trading copper said. The copper price in Shanghai is at a large premium to the LME, even taking into account shipping costs and taxes."

Stocks of copper in warehouses monitored by the Shanghai Futures Exchange at nearly 150 000 t have more than halved since early April, while prices have climbed to around $7 200/t.

"The price and demand is expected to follow China's manufacturing figures," said Lara Smith, MD at Core consultants, adding she expects copper demand to rise to 25.8-million tonnes in 2020

"We see some growth in copper due to the whole electric vehicle story as well as global infrastructure upgrades, especially in China. This should add around 500 000 t this year, rising to around 800 000 t in 2020."