13 Sep

Trump’s Tariff Reprieve Lifts Alcoa and Freeport

WRITTEN BY Mohit Oberoi, CFA
  • There has been optimism about a US-China trade deal. President Trump delayed the October 1 tariffs until October 15. He might be open to an interim trade deal with China.
  • President Trump’s tariff reprieve and trade war de-escalation lifted metal and mining stocks. Alcoa and Freeport-McMoRan have gained 25.8% and 12.8%, respectively, in September.

Trump’s tariff reprieve

In August, President Trump’s tariffs and China’s retaliation spooked markets. Metals and mining stocks were at the forefront in the sell-off. However, September is turning out to be an exciting month for metal and mining stocks. Alcoa (AA), the leading US-based aluminum producer, has gained 25.8% based on yesterday’s closing prices. Freeport-McMoRan (FCX), the largest publicly-traded pure-play copper miner, has risen 12.8% during this period. The rise in metal and mining stocks isn’t hard to comprehend. Aluminum and copper prices have been strong this month.

What’s driving the optimism?

There’s renewed optimism about a US-China trade deal. This week, President Trump announced that the tariffs scheduled for October 1 will be postponed until October 15. The tariff delay followed China taking some US goods off its tariff list. Now, President Trump seems open to an interim trade deal with China. The US-China trade conflict was among the most prominent reasons behind suppressed metal prices. Now, metals are repricing themselves due to President Trump’s tariff reprieve and trade war de-escalation.

Trump’s tariffs and China’s slowdown

Meanwhile, China’s slowdown seems to be deepening every day. President Trump’s tariffs impacted China’s domestic economy and the export sector. China’s exports to the US fell sharply last month. Overall, China’s exports and imports were also weak. From aluminum and copper’s perspective, China’s aluminum exports and copper imports fell last month. However, both of the metals have different connotations.

China August metals trade data

Last month, China’s unwrought aluminum exports fell 10.4% year-over-year. Fewer Chinese aluminum exports are positive for global aluminum markets and producers like Alcoa. Higher Chinese aluminum exports lower aluminum prices. However, copper is a different story. China doesn’t drive the mined copper supply. So, we need to look at China’s copper imports, which fell last month and signaled a domestic demand slowdown.

How long will Trump’s tariff reprieve last?

To be sure, this isn’t the first time that we’re seeing optimism about a US-China trade deal. However, in the past, optimism has been followed by more tariffs. While we don’t have any reason to believe that there will be a similar outcome this time, it’s better to wait for the final deal. While the trade war reprieve lifted metal and mining stocks, China’s growth slowdown hurt the sector.

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