Trump's tariffs lead to realignment in metal and energy market sectors

The recent tariff exemptions announced by the US have sparked a wave of recalibration in global metals and energy markets. This decision, while aimed at easing the impact of the trade dispute, has exposed a strategic vulnerability for the US - its heavy reliance on foreign supplies of metals.

The US imports a significant portion of its essential metals, with 80% of its rare earth elements, 76% of its zinc, 53% of its nickel, 44% of its aluminium, and 41% of its copper coming from abroad. This dependence has the potential to lead to retaliatory actions, particularly from China, a key player in the global metals market.

The broader macroeconomic outlook remains unambiguously negative, with tariff-driven uncertainty weighing heavily on investment and consumption. As a result, demand for metals and energy commodities has been cooling, leading to a shift in market pricing. The Exchange for Physical (EFP) premium in gold markets has collapsed, and there has been a steep drop in silver premium.

In the metals sector, gold may see modest gains, but its rise is likely to be subdued. On the other hand, copper, although currently exempt, has seen prices fall by around 3%, with markets anticipating that further tariffs may be imposed once the US concludes its Section 232 investigations.

Energy commodities, including oil and gas, are exempt from tariffs. However, the demand side is notably concerning, particularly in emerging Asian markets. Despite this, the price forecasts for oil remain in the US$60-70/barrel range, though the downside risk looms closer to US$50/barrel.

The tariff-driven uncertainty has also affected industries in countries like Germany and the European Union. German industry, including exporters like Mercedes-Benz, Volkswagen, Bosch, Continental, and ZF, has been impacted by high US tariffs imposed during the trade dispute.

The market reaction to the tariff exemptions has been significant. There has been a surge in inventories of copper, aluminium, and other metals, and a shift in gold from London to New York. This "hoarding effect" has inflated global prices temporarily, but the underlying sentiment remains negative.

In the short term, volatility is expected to remain high in global commodity markets. The demand side, particularly in emerging Asian markets, is a key concern. OPEC's decision to add 411,000 bpd to the market in May, well above the previously planned 135,000 bpd, could further exacerbate this volatility.

A webinar hosted by Bernard Dahdah, Joel Hancock, Thomas Hodge, Vincent Klaeyle, and Pierre-Chanel Rouxel discussed the impact of Donald Trump's tariff agenda on global metals and energy markets. The panelists highlighted the strategic vulnerabilities exposed in US supply chains, which could become leverage in an escalating trade conflict.

In conclusion, the tariff exemptions have triggered a deeper recalibration in global metals and energy markets, exposing vulnerabilities in US supply chains that could become leverage in an escalating trade conflict. The short-term outlook remains uncertain, with high volatility expected in the coming months.