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How Escalating Trade Tensions Have Impacted Commodities

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Apr. 6 2018, Published 8:07 a.m. ET

Trade war 

In this article, we’ll see how the trade war fear has impacted commodities (DBC). Specifically, we’ll be looking at aluminum and copper prices. Both copper and aluminum have seen selling pressure this year amid escalating trade tensions. Notably, copper is seen as an indicator of global economic activity, and some analysts refer to it as “doctor copper.” Falling commodity prices have led to a selling spree in copper miners like Freeport-McMoRan (FCX), BHP Billiton (BHP), and Rio Tinto (RIO).

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Aluminum

Meanwhile, aluminum prices recently fell below the $2,000 per metric ton level on the London Metals Exchange (or LME). Notably, the United States has imposed a 10% tariff on aluminum imports. Russia and China are the most affected by the tariffs as these countries are among the top five aluminum exporters to the United States.

Section 232 tariffs

While the Section 232 tariffs have led to a spike in US physical aluminum premiums, aluminum prices have been most impacted as trade war fears have escalated. Lower aluminum prices negatively affect Alcoa (AA), which is the leading US-based aluminum producer and has global operations. To be sure, lower aluminum prices would dig a bigger hole in the company’s profits, something that higher US physical premiums can’t totally offset.

Not surprisingly, Alcoa had requested that President Trump reconsider the Section 232 tariffs and instead help address the core issue of Chinese overcapacity that has been plaguing global aluminum markets for quite some time now.

In the next article, we’ll discuss more on the US-China trade war.

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