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Metals prices dip as sector digests US tariffs move

Concerns over a trade war between major economies shook up global markets last week after President Donald Trump announced that the U.S. will impose tariffs on steel and aluminum imports.

Additional duties will amount to 25% on steel and 10% on aluminum imports.

The move sent stocks lower and prompted harsh responses from political leaders and industry bodies, some of which were threatening retaliation.

The IMF was among those organizations warning that the restrictions could cause damage both outside the U.S. and to the U.S. economy itself, including to its manufacturing and construction sectors, which are major users of aluminum and steel.

"We are concerned that the measures proposed by the U.S. will, de facto, expand the circumstances where countries use the national-security rationale to justify broad-based import restrictions," IMF spokesman Gerry Rice said. "We encourage the U.S and its trading partners to work constructively together to reduce trade barriers and to resolve trade disagreements without resort to such emergency measures."

Price ring

The developments weighed on sentiment for metals, which largely finished the week in the red.

Base metals had a particularly bad run, all plummeting between 2% and 4%.

Zinc hit US$3,415/t, down 3.9% on the previous week's closing, while aluminum and lead both declined 3.0%, to US$2,143/t and US$2,458/t, respectively. Copper and nickel dived 2.5% and 2.3%, respectively, finishing the week at US$6,887/t and US$13,412/t.

Precious metals saw marginal declines only, with gold down 0.5% to US$1,322/oz and silver retracting 0.1% to US$16.50/oz.

Bulk metals held up fairly well, though iron ore remained widely flat US$75.60/t.

Talking points

Even though assessments are ongoing as more news about the Section 232 tariffs becomes available, preliminary analysis by RBC Capital Markets indicates the overall impact on the sector might even be positive, though the team said volatility is initially likely to ruffle sectors.

"We expect multiple developments this week and beyond which are likely to contribute to current share price volatility," the team said in a March 5 note. "The potential for a global demand slowdown should trade wars escalate is an obvious risk in our view, but we also note the much improved financial position the sector largely finds itself in, which should insulate the sector far better than in recent downturns."

RBC assessed limited effects for iron ore prices as Chinese supply-side reforms continue to be the dominating force for price performance. Gold prices could see a boost amid lower U.S. economic competitiveness and a weakening dollar on the back of higher inflation. The bank also identified modest support for coking coal amid increasing U.S. domestic consumption and a further tightening of the seaborne market.

"Although we would expect a sharp increase in US capacity utilisation, the steel price has already moved upwards to an extent and growth implications could dampen prices from here," the team said. "Aluminium tightness in US physical premiums is likely to be offset by lower [London Metal Exchange] prices and more pressure on costs in the value chain."

On the investment front, the mining sector at large could see a rise if the U.S. dollar further weakens and structural inflation moves higher.

"Our analysis suggests price movements will be relatively modest from here, however we favour US aluminium premiums, gold, coking coal and commodity trading businesses as beneficiaries; global steel, US domestic steel, and iron ore pricing as more or less unchanged; and, we see aluminium prices and aluminium input costs more negatively," the analysts concluded. "Our analysis suggests Glencore Plc, Anglo American Plc, Teck Resources Ltd., BHP Billiton Group would be more favorably exposed to the tariffs while Rio Tinto would be the most negatively impacted."


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