Nervous metals world scurries to adjust to Trump’s trade war
● Donald Trump’s attempts to rebalance global trade have already sent the metals world into a tizzy. As countries respond to US tariffs and sanctions, the disarray is set to increase.
Steel prices and aluminium premiums are shooting up in the US thanks to tariffs, threatening to wreak havoc on manufacturers. Everywhere else, metal prices are on a roller-coaster ride, with copper and zinc retreating on fears of slowing demand. If equity investors have stayed sanguine so far, metal investors are voting with their feet.
The next steps may be more dramatic as the US and China engage in trade-war brinkmanship that may involve billions in tariffs on everything from cars to soybeans.
For AKE International analyst Maximilian Hess, the standoff is part of an uptick in geo-economics, a mix of policy and economics, that will squeeze or aid certain metals companies and commodities.
Trump tariffs have helped make US steel prices among the highest in the world. That swells the bottom line of domestic producers such as Nucor and US Steel as well as benefiting the US plants of foreign companies such as ArcelorMittal.
And while Canadian and Mexican producers are subject to tariffs, Brazilian rivals aren’t. That’s helped push up shares in Sao Paulo-based Gerdau by 22% this year.
While sky-high US metal prices are great for local producers, manufacturers have to pick up the bill, undermining their competitiveness. CRU Group’s principal steel analyst Josh Spoores put it bluntly: “We’re going to see a lot more offshoring.”
So successfully have tariffs pushed up American steel that foreign metal is becoming more appealing. KeyBanc Capital Markets steel analyst, Phil Gibbs, says demand destruction is a real concern, with consumers potentially reconsidering orders.
Tariffs look set to squeeze margins for carmakers, which may encourage them to shift operations and even materials, says CRU aluminium analyst Doug Hilderhoff. One possibility is that they reconsider plans to increase their use of aluminium and stay with steel. Hilderhoff also says original equipment manufacturers could move to Mexico or Canada, where they can import aluminium without a tariff and turn it into finished goods that can be shipped into the US without being taxed.
Few industrial metals have been left unscathed by tariffs, sanctions and the uncertainty of how long they will last. A month ago, copper was near four-year highs as investors anticipated a tightening market.
But as fears grow that tariffs will erode global growth, copper and other metals capitulated. The pullback has come just as producers were starting to move forward on expansions after emerging from a painful downturn. As prices retreat, the industry may start to question its newfound largesse and batten down the hatches once again.
Trade conflicts between the US, its allies and China, and threats of tariffs on US car imports, have thrown a wrench into metals used in rechargeable batteries.
“In the medium or longer term, it may constrain the industry as automakers are not committing to new production lines,” said Gavin Montgomery, director of metals markets research at Wood Mackenzie.
“There is so much uncertainty in terms of where they might source parts and what their export markets might be.”
Few epitomise how quickly the sands are shifting more than Glencore. One of the most adept companies at navigating tough environments, the giant trader and producer is dealing with tariffs in various forms and a long list of supply shocks, including sanctions and resource nationalism.
In April, CEO Ivan Glasenberg had to quit the board of one of Glencore’s biggest aluminium suppliers, United Company Rusal, after it was hit with US sanctions.
While China is the main focus of Trump’s trade push, other countries want to prevent dumping. The EU said it will impose curbs on foreign steel to prevent being flooded with shipments diverted from the US. Canada is said to be making similar plans.
The tariffs also are forcing Asian nations to erect barriers. That means fewer markets for surplus steel from China, where demand will continue to soften, according to Bloomberg Intelligence metals analyst Andrew Cosgrove. While that suggests tariffs will help in decreasing Chinese oversupply, it also means prices in other countries will be higher, hurting manufacturers, he said.
The Rusal sanctions and disruptions in Brazil sent prices of alumina, the main ingredient in aluminium, to record highs. For smelters that buy alumina, high prices blunt some of the tariff benefits. It is a different dilemma for those that make their own.
Alcoa has left the door open to selling more alumina and feeding less to its own smelters, which is not what Trump would want to hear as he tries to revive idled US plants.
There is so much uncertainty in terms of where they might source parts and what their export markets might be Gavin Montgomery
Markets research director at Wood Mackenzie Steel