(Bloomberg) -- Copper, aluminum and iron ore led metals lower after President Donald Trump imposed tariffs on China, Canada and Mexico, threatening a trade war that could sap global economic growth.
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The red metal, an industrial bellwether, fell as much as 1.5% on the London Metal Exchange, and aluminum was down by a similar amount. Steelmaking staple iron ore dropped by as much as 3.5% in Singapore, while Chinese markets remained closed for the Lunar New Year holidays.
Trump announced a 10% levy on imports from China, as well as 25% tariffs on Canada and Mexico, that will take effect from Tuesday. The impact on the dollar, with a gauge up by as much as 1.2%, also weighed on metals as a costlier US currency makes them more expensive for most buyers. China’s commerce ministry vowed “corresponding countermeasures,” without elaborating, and also said it would file a complaint at the World Trade Organization.
A global trade war may spur inflation, keep interest rates higher for longer, and will be a headwind for global growth and metals demand. It could also lead to nations restricting exports of critical minerals. China, the world’s largest consumer of most metals, is still struggling to revive economic growth that hasn’t fully recovered from Covid-19, although it will now likely step up measures to stimulate expansion.
“While the energy transition and a recovery in economic growth in Europe would support metals demand, Trump’s proposed tariffs will limit demand growth” as business confidence will stay subdued, ANZ Group Holdings Ltd. said in a note by analysts Daniel Hynes and Soni Kumari. Credit growth in China remains depressed, but deployment of additional stimulus will be a “wild card for metals demand,” they said.
Copper fell 1.3% to $8,929.50 on the LME as of 10:57 a.m. in Singapore, after dropping 2.5% last week. Aluminum slumped 1.4% to $2,559 and zinc declined 1.2%. Iron ore lost 1.1% to $104.55 a ton in Singapore.
China’s domestic markets reopen on Wednesday.
The impact of tariffs on commodity prices depends on several factors, the most important of which is how if affects the economies of China and other emerging markets, Jefferies analyst Christopher LaFemina said in a note. The one market that is likely to benefit is US steel, as more expensive imports should support higher domestic prices, he said.
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