By Biman Mukherji
Metals prices have swung wildly since Donald Trump, who has pledged to curb Chinese imports while investing in infrastructure, was elected president of the U.S.
Copper prices on the London Metal Exchange were up 8.7% since the U.S. election result, while aluminum and zinc were up 2.7% and 2.4% respectively.
Most metal prices tumbled when it became clear that Mr. Trump was headed to a surprise victory because traders were unclear about his policy positions. Since then, prices have climbed as the market weighed the potential positive effect of Mr. Trump's call for rebuilding infrastructure.
The swings underscore the uncertainty about Mr. Trump and what his agenda will mean for the metals market.
"Irrespective of the infrastructure boost, Trump's policies could negatively impact China's exports to the U.S. if Trump follows through on his campaign pledges to place trade restrictions on China--steel, cement, and solar among other sectors would be vulnerable," said Alexander Wolf, senior emerging markets economist at Standard Life Investments.
Mr. Trump's election coincides with a global metals glut. In recent months, Chinese producers have added to the oversupply by stepping up output of key metals such as aluminum and steel.
Mr. Trump vowed to impose across-the-board tariffs on imports from China, a large exporter of metals to the U.S. If China were essentially cut off from the U.S.--especially if Mr. Trump delivers on his promise to bolster domestic producers and push legislation to fund an infrastructure boom--the excess metal would wash up onto the rest of the global market.
It is unlikely that Chinese producers would be able to turn off the tap quickly, which could bring prices under pressure. But it is also unclear whether Mr. Trump would cut China out of a U.S. infrastructure boom, given his business background and his own use of metals imported from China, analysts said.
Metals prices will remain volatile in the absence of clarity on Mr. Trump's policies, said Daniel Hynes, commodity analyst, ANZ Bank. If the issue of protectionism "starts to generate some anxiety, [metals] prices will come under pressure," he said.
Already, China is facing large U.S. tariffs. Under pressure from American steelmakers, the U.S. in the past year has imposed tariffs as high as 266% on some steel from China. It has imposed similar punitive measures on aluminum products.
While the U.S. is an important market for China, U.S. imports of Chinese steel have been on a downward trajectory in 2016, totaling 615,690 million tons in the first three quarters of this year, less than half of what was imported in full year 2015, according to Platts Steel Data and Analysis.
Aluminum imports from China doubled between 2011 and 2015, but have started declining this year.
If the U.S. imposes protectionist measures, it will likely douse optimism that Mr. Trump's proposed infrastructure spending will require more metals flowing into the U.S., analysts said.
Chinese steel exports have declined for three consecutive months ending October as domestic demand--driven by a pickup in housing and infrastructure spending--helped absorb some of the extra metal being produced.
But Chinese cities have recently taken measures to curb speculation in the property market, which will likely hurt domestic demand even as production of steel, aluminum and other metals such as zinc are being churned out at close to record pace.
"We are likely to see continuation of robust exports for steel and aluminum," said Eugen Weinberg, head of commodities research at Commerzbank.
Few traders are betting that market uncertainty will stop soon given Mr. Trump's policy ambitions and challenges.
"I suspect details of the policy and policy implementation will take some time," Mr. Hynes of ANZ Bank said.
Write to Biman Mukherji at firstname.lastname@example.org
(END) Dow Jones Newswires
November 13, 2016 01:49 ET (06:49 GMT)
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