Aluminum Slips Ahead of Trump Tariff Decision While Zinc Sinks

(Bloomberg) -- Aluminum lost ground on Thursday ahead of a likely announcement of U.S. import tariffs, leading analysts to warn the measures could expose American consumers to higher prices and create gluts elsewhere. Zinc tumbled for a third day on signs of stronger supply in China. 

Aluminum dropped 0.3 percent to $2,126.50 a ton on the London Metal Exchange, trading near the lowest level this year, after people familiar with the matter said President Donald Trump will announce trade barriers later today to reduce reliance on imports and jump-start domestic production of aluminum and steel.

“We're finding that people want to get bullish on aluminum because of the tariffs, but we don't feel that positive,” Vivienne Lloyd, an analyst at Macquarie Group, said by phone from London. “If you put a blockade on aluminum going into a market that's in deficit, that metal is just going to start accumulating elsewhere.”

The main impact of tariffs would be on the premiums paid by U.S. consumers, which have been spiking in recent weeks as market participants anticipate a hike in the cost of imports, Lloyd said.

Tariffs could also spur a jump in aluminum output from U.S. plants that have been shuttered due to cost pressures in recent years. Recommendations made by the Commerce Department that the administration should look to boost plant utilization from 48 percent to 80 percent suggest that about 500,000 tons of annual capacity could be brought back online, Lloyd said.

See also: Winners and losers from Trump's tariffs on aluminum and steel

Other metals were also under pressure on Thursday, with zinc and nickel both losing more than two percent. Zinc traded at $3,381 a ton, dropping for a third day on signs of stronger supply in China.

Zinc has come under strain after a surge in zinc concentrates imports into China in January, especially from Australia, Macquarie's LLoyd said.

“We still think zinc is going to make one last push higher on Chinese galvanized steel restocking from end-March, but the concentrates import data is focusing minds on the new material that's going to be coming into the market this year,” she said.

Most base metals were down, with copper dropping 0.8 percent as the dollar rallied after incoming Fed Chairman Jerome Powell opened the door to further rate hikes.

“We are seeing some renewed dollar strength after Powell's speech, and base metals are a bit under pressure,” Xiao Fu, head of global commodities strategy at BOCI Global Commodities U.K., said by email. “There will be some macro headwinds over the near term, but after the Lunar New Year, China's spring demand is expected to pick up.”

To contact the reporter on this story: Mark Burton in London at mburton51@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Alex Devine, Liezel Hill

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