LAUNCESTON, Australia, March 13 (Reuters): Dial out the noise and focus on the fundamentals is a tactic that may work best for global commodity markets as they navigate the mounting challenges posed by US President Donald Trump's erratic and inconsistent trade policies.
While the media focus on each headline-grabbing announcement and social media post about new and retaliatory tariffs from the US leader and his administration, commodity markets are busy doing what they have done so well in the past, adapting to rapidly changing circumstances.
For commodities it's important to make distinctions between those already being affected by Trump's trade policies, those likely to be in the future, and those unlikely to suffer direct impact, but which might feel second-round effects from a slowing world economy.
The first group includes steel and aluminium, with Trump's 25 per cent tariffs on all imports of the metals having started.
The main impact is likely to be price increases for steel and aluminium in the United States, as domestic producers have limited scope to boost output significantly.
That will force consumers of the metals to pay the tariffs, and they are also likely to face increases in the cost of US-sourced metals as local producers raise prices to match those of competing imports.
Over the longer term it is possible that US aluminium and steel makers will increase capacity and output, or that foreign producers will build plants in the United States.
But whether this happens depends very much on whether companies take the view that the tariffs are largely permanent, and if the US economy will be strong enough to justify making the investments.
For countries outside the United States there may be some re-ordering of trade flows as they seek to replace metals previously sold to the United States, but a far bigger risk is the threat of a synchronised global economic slowdown as tariffs cut trade flows, boost inflation and cut competitive advantages.
Commodities in Trump's firing line include crude oil and copper, albeit from different perspectives.
Trump has indicated he intends to put a tariff on copper imports, a move that is drawing copper inventories from Asia and Europe to the United States and increasing the price of US copper relative to other global benchmarks.
This a straight arbitrage play likely to wind down as soon as tariffs take effect, or not, depending on what Trump eventually decides.
Disruption to the global copper market is likely to be limited, with the fate of China's economy this year more of a driver, since it is the world's biggest importer and processor of the metal.
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