Donald Trump's attempts to re-balance global trade have already sent the metals world into a tizzy. As countries respond to U.S. tariffs and sanctions, the disarray is set to increase.
Steel prices and aluminum premiums are shooting up in the U.S. 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 U.S. and China engage in trade-war brinkmanship that may involve hundreds of 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. Here are some thoughts on casualties and beneficiaries.
Friendly Fire
Trump tariffs have helped make U.S. steel prices among the highest in the world. That swells the bottom line of domestic producers such as Nucor Corp. and U.S. Steel Corp. as well as benefiting the U.S. plants of foreign companies like 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 SA by 22 percent this year.
While sky-high U.S. 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 successful have tariffs been in pushing up American steel that foreign metal is becoming more appealing. And Phil Gibbs, a steel analyst at KeyBanc Capital Markets, says demand destruction is a real concern, with consumers potentially reconsidering orders.
Substitution Possibilities
Tariffs look set to squeeze margins for automakers, which may encourage them to shift operations and even materials, says CRU aluminum analyst Doug Hilderhoff. One possibility is that car makers reconsider plans to increase their use of aluminum and stay with steel.
Hilderhoff also says original equipment manufacturers could move to Mexico or Canada, where they can import aluminum without a tariff and turn it into finished goods that can be shipped into the U.S. without being taxed.
