Concerns grew over a trade war between the U.S. and China after President Donald Trump said he was considering a range of options to address steel and aluminum imports unfairly hurting U.S. producers.
The U.S. Department of Commerce released detailed reports on the matter, suggesting a set of tariffs and quotas to protect domestic producers. The reports are under consideration by the president, who will be required to make a decision on the recommendations by mid-April.
Meanwhile, weakness in the U.S dollar, a recovery in global equities, and prospects of strong global demand for raw materials last week helped metals prices soar across the board.
A lower dollar makes metals cheaper for holders of other currencies, and typically spurs buying activity.
Sentiment was helped by buoyant position taking ahead of the Lunar New Year holiday, which has closed Chinese markets until Feb. 22.
Base metals in particular had a bullish run, with copper recording its biggest weekly jump in months. The red commodity was up 6.4% by closing on Feb. 16 at US$7,143/t — now trading nearly 20% higher than a year ago.
Nickel climbed more than 9% to US$14,107/t — 28% higher than 12 months ago. A combination of surging China imports, tighter supply and fund interest are expected to sustain prices of the stainless steel ingredient.
Zinc and lead also booked strong gains at 5.3% and 3.2%, respectively, to US$3,595/t and US$2,610/t. Aluminum increased a marginal 1% to US$2,164/t.
The rally also lifted precious metals, as platinum gained 4.7% and gold and silver 2.7% and 2.4%, respectively. Inflation fears have in recent weeks boosted demand for precious metals, following a string of U.S. economic data that sparked concern of near-term interest rate hikes as the Fed needs to offset inflation pressure.
Bulks were more subdued, and iron ore remained widely flat at US$74.6/t.
The Commerce Department's proposed trade actions on steel and aluminum imports have prompted speculation about the effects they could have on the U.S. and Chinese economy as well as metals prices globally.
Analysts from UBS assume that there will only be a modest effect on the U.S. economy, and that pain of higher costs will only be inflicted on certain sectors.
"Key traditional exporters of both goods already face sizable Section 301 tariffs. But also, even though steel and aluminum are widely used as inputs to production, the total quantities of imports are small relative to the size of the economy," the analysts noted Feb. 16. "Steel accounts for less than (1%) of imports and hence a 24% tariff would have a negligible effect on aggregate inflation and demand."
However, the bank flagged that industries with high use of metals, such as energy, real estate and motor vehicle production sectors could be negatively impacted, with the latter two less likely to be able to absorb and pass on higher metals prices.
U.S. proposals presently outline a global tariff of at least 24% on all steel imports from all countries, or a tariff of at least 53% on all steel imports from 12 countries with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the U.S., or a quota on all steel products from all countries equal to 63% of each country's 2017 exports to the U.S.
For aluminum, the Commerce Department recommended a tariff of at least 7.7% on all aluminum exports from all countries, or a tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the U.S., or a quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the U.S.
If implemented in line with these recommendations, the move would lead to higher domestic commodity prices, which could benefit domestic producers but in turn rise input costs for manufacturers, according to RBC Capital Markets. In the long term, this could provide further momentum to U.S. inflation.
"Perhaps the end result is a break-down of the commoditization of commodities, whereby localized premia (or discounts) make customer relationships and bespoke products are required for reliable offtake. Perhaps long(er)-term contracts come back in favour?" analyst Paul Hissey commented Feb. 18.
For China's export-driven economy, potential tariffs would result in lower margins unless products are shipped to other markets "in a move that could lead to additional geographic restrictions," Hissey noted. Alternatively, producers could opt for volume dumping in a bid to drive up prices.
"China is an export driven economy, and as such needs to maintain its relationships with the global consumer base," Hissey elaborated. "Surely a ratcheting economic dispute between the world's two largest economies is a bad outcome for everyone, but more so the smaller, nearby participants. Considering steel or aluminum, for example, lack of trade between the two countries is likely to result in lower production in China and/or other consumers of China's goods facing an even greater inflow of cheaper products, potentially to greater impact on smaller markets."
Sherritt International Corp. cut back debt by C$121.2 million through a Dutch auction tender offer to purchase for cash debentures and notes due in 2021, 2023 and 2025. The company bought C$49.8 million of its 8% senior unsecured debentures due in 2021, C$44.1 million of its 7.5% senior unsecured debentures due in 2023 and C$27.3 million of its 7.875% senior unsecured notes due in 2025 for a total of C$110.3 million plus accrued interest.
Lingbao Gold Group Co. Ltd. terminated a HK$76 million bond issuance that was supposed to target subscribers principally engaged in academic tutoring services. The cancellation came amid complex requirements as part of the approval process in China that would have "seriously" affected the expected issuance date of the bonds and the use of the proceeds.
W Resources Plc agreed a US$35 million secured term loan facility to fund development at the La Parrilla tungsten-tin mine in Spain. The loan is valid for a five-year term, with a two year noncall period, and is repayable at a 5% premium after two years, a 3% premium after three years, and no premium after four years.