Commodities ignore Trump's noise and focus on fundamentals of trade: Russell

The best way to navigate the challenges that the U.S. president Donald Trump's inconsistent and erratic trade policies are posing for the global commodity markets is to ignore the noise and concentrate on the fundamentals.

While the media focuses on every headline-grabbing announcement or social media post regarding new and retaliatory duties from the U.S. president and his administration the commodity markets continue to do what they have done in the past: adapt to rapidly changing conditions.

It's important to distinguish between commodities that are already affected by Trump's policies and those likely to be impacted in the future. There may also be those who will not suffer direct effects, but could feel indirect effects due to a slower world economy.

Steel and aluminum are included in the first group, with Trump's 25% tariffs now on all metal imports.

Steel and aluminum prices are likely to rise in the United States as domestic producers cannot increase production significantly.

The tariffs will be imposed on the consumers, who are likely to see the price of metals sourced from the United States increase as the local producers match the prices of imports.

It is possible, in the long term, that U.S. producers of aluminium and steel will either increase their capacity and output or that foreign producers may build plants in the United States.

If this is the case, it will depend on how companies view the tariffs and whether the U.S. economic situation is strong enough to justify the investment.

Tariffs may cause some trade flow reordering for countries that do not sell metals to the United States. However, the greater risk is a global economic slowdown due to the reduction of trade, inflation, and competitive advantage.

Trump is targeting crude oil and the copper industry, but from different perspectives.

Trump has said he plans to impose a tariff on imports of copper, which is causing inventories to move from Asia and Europe into the United States. This in turn increases the price for U.S. Copper relative to other benchmarks around the world.

This is a simple arbitrage game that will likely end as soon as the tariffs go into effect or not depending on what Trump decides.

The global copper market will likely be relatively stable this year, as the Chinese economy is expected to have a greater impact, being the largest importer and producer of the metal in the world.

MILITARY METALS

One example of ignoring the noise and looking at the fundamentals is Trump's reported plans to build metals refinery facilities on U.S. Military bases in order to secure a supply of vital minerals.

Trump is right to be concerned about China's control of much of the sourcing, processing, and distribution of minerals that are critical, including metals like copper, lithium, and cobalt as well as other minor metals, such as tungsten, and rare earths.

It is not clear if building refineries on military bases is the best solution.

Trump's actions do not seem to increase U.S. resources.

Trump's bullying tactics and tariffs against friends and enemies alike have ruined the reputation and image of the United States.

Anthony Albanese, Australia's Prime Minister, urged Australians to purchase local goods rather than U.S. products in response to Trump's tariffs.

Albanese, in a radio broadcast on Thursday, said: "Buy Bundy instead of some American products... You can make an impact." Albanese was referring to the famous domestic rum.

Australia has large reserves of many critical minerals. However, with Trump's treatment of the country as an enemy in trade it is becoming increasingly difficult to find cooperation for investment into developing mines and processing.

Crude oil may also be affected by Trump’s policies but from a geopolitical perspective rather than tariffs.

Prices will rise if Trump uses sanctions to reduce Iran's crude oil exports to zero.

If he is able to achieve a deal for peace in Ukraine, this will likely be at Russia's terms, and may result in a easing of sanctions that could boost supply.

If the trade war escalates, there is also a risk that U.S. oil exports will be included in retaliatory duties. This would force a reordering of global flow.

The United States, the largest LNG shipper in the world, is at risk of getting caught up in trade wars. This has already begun with China's tariffs which will likely end Beijing's purchase of U.S. goods.

Gold has quietly benefited from Trump's actions. Its price has risen to new highs, as investors look for a safe-haven.

The fact that Trump hasn't mentioned gold in his list of tariff targets is important. Much of the current rise of precious metals, which is about 15%, since November's election win to Wednesday's closing price of $2,932.06 per ounce is due to U.S. investor buying.

Metals Focus reports that from December to February, 600 metric tonnes of gold were transferred into CME-approved vaults. This has led to a tightening of the physical supply of gold in Asia, which is the region with highest demand.

Gold is in some ways the poster child of how commodities should respond to Trump. Don't over-analyze the situation. Assess it, and act accordingly.

These are the views of a columnist who writes for.

(source: Reuters)