(Bloomberg) -- The last time the Trump administration unveiled metal-import tariffs, American steel and aluminum producers rallied. The benefits of a second-round of protection are far less clear.
Producers of metals from copper to steel and aluminum fell Wednesday as the latest U.S. duties and China's response elevated the risk of an all-out trade war between the two super-powers that could derail global growth. Jitters eased and shares rebounded after U.S. Commerce Secretary Wilbur Ross said the U.S. is open to talks with China.
While tariffs introduced last month under Section 232 of a 1962 trade act heralded targeted protectionism for American steel and aluminum makers, a protracted trade brawl would leave domestic producers of raw materials used in everything from aircraft to flamethrowers exposed to potential fallout.
On Tuesday, the U.S. Trade Representative revealed plans to slap an additional 25 percent tariff on a long list of products, including metals. Then China said it would slap an additional 25 percent levy on about $50 billion of U.S. imports including soybeans, automobiles, chemicals and aircraft.
“A trade war is not good for trade, which is not good for cyclicals, which is not good for materials,” Andrew Cosgrove, a senior analyst with Bloomberg Intelligence, said by telephone. “People are just going to de-risk, and just shoot first and ask questions later.”
The Winners
Tariffs may crimp shipments into the U.S., curbing supply of aluminum. The holders of the metal, including traders, are reaping the gains as domestic prices of the metal rise.
The premium buyers pay for aluminum for delivery in May in the U.S. Midwest jumped 7.5 percent to the highest in records going back to 2015. That boosts the value of the inventory held by producers such as Alcoa Corp., helping bolster their cash flow.
Shares of the largest U.S. producer of the metal advanced 3.5 percent in New York, the second-best performer of 32 members on the Bloomberg Americas Mining Index. Whether Alcoa's revenue will rise as a result depends on how buyers react to higher prices.
While the tariffs passed last month stood to benefit the domestic industry, the latest round against China may not move the needle, according to Wood Mackenzie. About 95 percent of the aluminum imported from China is sheet and foil. These are the items that are already facing stiff duties of 49 percent to 106 percent even before the 232 decision.
“I don't see further impact from what was announced overnight,” Kamil Wlazly, a senior metals analyst at Wood Mackenzie in London, said by telephone.
Steel Makers
Shares in U.S. steelmakers including Nucor Corp. and Steel Dynamics Inc. rose, erasing earlier declines spurred by Chinese retaliatory measures.
“You get 232, but is that positive enough to offset any dilution to the downstream?” Novid Rassouli, an analyst at Cowen, said by telephone.
A gauge of 72 global base metal producers tracked by Bloomberg Intelligence fell 0.5 percent. Glencore Plc, Anglo American Plc and Lundin Mining Corp. were among the decliners.
“A full-blown trade war could undermine expectations of global synchronized growth this year,” Oliver Nugent, an analyst at ING, said by email. “It's important to remember a good portion of Chinese copper consumption goes into exported products.”
Gold Investors
Assets in exchange-traded funds backed by gold climbed by $58.1 million to $97.5 billion as of early Thursday morning trading in Asia after prices of the precious metal climbed. In the week ended March 27, money managers boosted their net-long position, the difference between wagers in price gains and bets on declines, by 42 percent, the most in eight months, data from the Commodity Futures Trading Commission compiled by Bloomberg show.
“Gold worked for the hedgers today,” George Gero, a New York-based managing director at RBC Wealth Management, said in an email. “Tariff-trade war fears could be a game charger helping asset allocators return to adding gold.”
--With assistance from Mark Burton and Susanne Barton
To contact the reporters on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net, Joe Deaux in New York at jdeaux@bloomberg.net, Danielle Bochove in Toronto at dbochove1@bloomberg.net.
To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Steven Frank
©2018 Bloomberg L.P.
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