Beijing, not the White House, to steer course of world metals prices

For all of Donald Trump’s fiery rhetoric, it’s industrial policy in Beijing and not trade action from the White House that’ll continue to steer world metals prices.While President Trump plans to slap steep import duties of 25% on steel and 10% on aluminium, delighting US producers and drawing threats of retaliation from suppliers including China, “US tariffs on their own are a relatively small issue for these markets,” according to Daniel Hynes, senior commodities analyst at Australia & New Zealand Banking Group.“First and foremost, supply-side reform in China has by far the bigger impact on global markets and by comparison this is just a little blip, especially on the steel side,” he said by phone from Sydney.Even as share prices of the companies that compete with US suppliers got whacked in Asian trading, the metals themselves showed a more muted reaction. Aluminium in London fell 0.3%, and in Shanghai the decline was just 0.2%. Shanghai steel fell 0.7%.Those prices have been revived over the past two years, after an epic collapse that began in 2011, by plant closures and environmental curbs in China, as well as measures to reflate demand in Asia’s biggest economy. China is not just the world’s biggest consumer of metals but also produces about half its steel and aluminium. Its political elite gathers in Beijing next week to set goals for the coming year that are expected to advance on President Xi Jinping’s flagship supply-side reforms.For steel, those have delivered a sharp drop in exports from 2015’s peak. Aluminium, however, is seeing ageing plants replaced by new capacity, and both output and exports rose to a record last year. How China continues to deal with metals oversupply will draw more attention than US trade policy, Hynes said.The broader risk is that China retaliates, spurring a trade war that weighs on global growth and damps demand for industrial commodities, which is the main fear weighing on stock prices.Tom Orlik, chief Asia economist for Bloomberg Intelligence, sees that possibility as low for now, given how little aluminium, and particularly steel, is shipped by China to the US. The impact on China “is likely to be impossible to discern in the GDP numbers,” Orlik writes.ANZ’s Hynes doesn’t discount the geopolitical risk but argues the tariffs threat “should wash over pretty quickly and the market focus should return to environment-related curbs in Hebei or other factors in China.” Hebei is China’s top steel- making province, which is leading capacity cuts.Still, “the tariffs do make the global picture even cloudier,” he said. “Geopolitical and macro issues generally are becoming more significant for commodities, which could mean a little bit more volatility.”