Commodities are punted to benefit when Trump assumes presidency

DONALD Trump’s promise to revive US infrastructure means commodities used to build everything from airports to bridges will benefit under his presidency, according to Goldman Sachs Group.

Spending by the Republican would support construction activity and boost steel, iron ore, nickel, zinc and diesel, analysts including Damien Courvalin and Jeffrey Currie said in a report on Wednesday.

Trump’s proposal to roll back emissions-reduction targets could lift demand for natural gas as less uncertainty over policy boosts investment in an already competitive source for power and petrochemical production, according to the bank.

Trump has signalled spending of more than $500 billion (R7 trillion) to rebuild US infrastructure with a pledge to at least double Clinton’s estimated $275bn, five-year plan for roads, airports and bridges.

The billionaire businessman, who has never held public office, defeated his rival after a campaign that exposed searing divides in the US public. He’ll have a Republican-controlled Congress behind him after the party shocked Democrats by keeping control of the Senate.

“The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the US,” the analysts wrote.

While the president-elect is seen removing policy uncertainty and triggering greater investment in the US, an increase in perceived geopolitical risks and possible restrictions on international trade have rattled global markets.

Prices of raw materials and shares of the companies producing them recovered after being whipsawed as investors wrestled with the implications of Trump’s win on Wednesday.

Under current consumption patterns, Trump’s infrastructure

Spending by the Republican will support construction activity and boost steel, iron ore, nickel, zinc and diesel.

plan may only have a “modest impact” on the global steel market as the US only represents 7 percent of worldwide demand and the nation’s steel per capita consumption is only half of China’s, according to Goldman.

However, US and developed-market infrastructure spending had been stagnant since the 1970s, suggesting that a catch-up in investment could still lead to a significant recovery in steel demand, its analysts said.

US infrastructure spending is unlikely to kick in until the third quarter of 2017, at the same time as the impact of Chinese stimulus is likely to fade, “so rather than be outright bullish it may simply smooth the path of slowing Chinese demand growth for base metals in the second half of 2017 and 2018”, according to the bank.

Weaker demand The impact on copper demand would be limited, because the metal is more closely tied to housing activity involving wires and appliances, Goldman said.

Supply growth is accelerating into the year-end with weak housing starts, lower mortgage issuance and property sales in China – all pointing to sequentially weaker demand growth, according to the bank.

It reiterated the view that zinc prices would outperform copper.

All industrial metals advanced on the London Metal Exchange (LME), with zinc jumping 3.2 percent, nickel up 2.2 percent and copper advancing 3.3 percent early in the afternoon yesterday. The LME index on Wednesday rose 2.1 percent to its highest level since June last year.

Goldman’s outlook on gold remains mixed. While fiscal and geopolitical uncertainty, as well as potential inflationary fiscal spending and import tariffs, might be positive for bullion, stronger growth could be bearish, the bank said.

With an interest rate hike by the Federal Reserve still expected to come in December, the lack of policy details until the first half of next year kept the outlook mixed.

The precious metal was on the rise again yesterday after paring its biggest increase since the Brexit vote in the hours following Trump’s win on Wednesday. Gold for immediate delivery advanced as much as 0.9 percent to $1 288.81 an ounce yesterday.

While Trump’s proposals to roll back emissions-reduction targets would suggest greater demand for coal, natural gas might be the real beneficiary, according to Goldman.

Trump’s victory will also support US oil and gas production, with less regulation on exploration and a lifting of drilling restrictions in certain locations, the Goldman analysts wrote. But the impact could be initially offset from renewed sanctions on Iran.

The effect on agriculture would probably be bearish for US demand and acreage, the bank said. The introduction of tariffs on imported goods could further raise the risk of retaliatory measures, which would affect US agriculture, given the size of US maize and soya bean exports to China, Goldman said.

This would then increase demand for Latin American exports to the detriment of US shipments, according to the bank. – Bloomberg