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Demand for Industrial Metals Rises as US Economy Braces for Reform

© AFP 2023 / LEON NEALTraders operate in the Ring, the open trading floor of the new London Metal Exchange (LME) in central London. (File)
Traders operate in the Ring, the open trading floor of the new London Metal Exchange (LME) in central London. (File) - Sputnik International
Industrial metal markets in London and Shanghai have absorbed part of the bond market losses in capitalization, with copper having surged between 15pc and 19pc in less than a week after Donald Trump was elected president of the United States – a possible sign of major shifts in international trade.

Kristian Rouz – The ongoing decline in global bond valuations, owing to Donald Trump’s election as the US president, has resulted in investors seeking profitable opportunities elsewhere, eyeing the news from the US leadership in transition for clues.

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After Trump’s interview on Monday, where the president-elect reaffirmed his commitment to undertaking a full-scale refurbishment of the US infrastructure, a fraction of investment capital fleeing the bond market settled in industrial metals, pushing copper to its 16-months highest.

Albeit certain market participants, primarily hedge funds, have warned of the adverse effect of Trump’s election to the emerging markets, the looming re-industrialisation of the US would require a massive amount of commodity goods, and the nascent developments in industrial metals are stirring higher expectations for select overseas economies, including Australia, Chile, Brazil, and Russia.

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Copper, the benchmark for industrial metals, advanced 3.4pc in London in Monday’s trading, extending last week’s 11pc gains on Trump’s vow to invest roughly $500 bln of governmental money into the US infrastructure as part of his massive fiscal stimulus effort. The actual estimated volume of total investment, private and public, is deemed significantly above that, as capital rout from the battered bonds market has released a massive amount of funds available for reinvestment.

On the Shanghai Futures exchange, copper has surged some 19pc since Trump’s election, to Australia’s sheer delight, as the island nation is a key industrial metals exporter. Other emerging markets, wobbly somewhat due to the dollar’s appreciation, are eyeing promising opportunities as well, including Chile, the world’s largest copper exporter, Brazil, one of the world’s leading aluminium producers, and Russia, boasting substantial volumes of steel and nickel exports.

"Positive sentiment is wavering with investors re-evaluating the implications of a Trump presidency," ANZ Bank said in a note.

Not all this, however, means the US will substantially expand imports of industrial metals, but gains in this commodity type prices are a sign of a global economic acceleration, prompted by the erasure of international bond markets capitalisation. For instance, mainland China has boosted spending on fixed assets despite the lingering sluggishness in manufacturing, resulting in an additional upward pressure on metals.

"Yields will continue to rise over the next year," Hiroki Shimazu of the Tokyo branch of MCP Asset Management said. "The fundamentals are very strong, particularly in the U.S. There are some signs of higher inflation pressures. Trump is pushing this phenomenon."

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The Trump-provoked carnage in bond market capitalization worldwide might significantly reshape the patterns of global trade in a very short period of time. Over the period of 1945-2000, the US had been the main trading partner for most emerging markets, whose economies were leveraged (in debt) to the US.

Since the 2000s, mainland China has taken the place of the US in many emerging markets’ balance sheets, and with the Chinese economy slowing, a wide spectrum of developing or transitional economies have been feeling the pain. However, the Trump-proposed renegotiation of the existing trade deals and the looming conclusion of the new ones could be the turning point.

"For many countries around the world, China is now the biggest trading partner, so this kind of tit-for-tat trade protectionism with China will dampen the atmosphere for the international trading community," Prof. Yorizumi Watanabe of Japan’s Keio University said. "That is no good for Japan or anyone else."

The question is, what international trade partners the Trump administration would consider best for US economic interests. With his protectionist drive, Trump would likely be opposed to trade cooperation with the established manufacturing leaders, such as Japan, mainland China or the Eurozone, who are immediate competitors to the US in the global market. Nations like Australia, Brazil, and Russia might be a likelier bet, particularly so in the wake of speculation of the looming trade wars between the US and mainland China.

"My guess is there will be some negotiations or renegotiations, but we will avoid the most extreme outcomes, though the long-term tendency is toward increased protectionism," Joseph Incalcaterra of the UK bank HSBC said.

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