Week in review: Tariffs, Panama Canal and the Far East

Trump’s Proposed Tariffs

• Some people we spoke to in the market are saying that they think Trump is likely to reduce the tariff threat on aluminum to 10%, which is pretty much already reflected in the Midwest premium.
• If the tariff does go to 25%, it might not last more than three weeks to a month, just like before.
• A 10% tariff would be the “best scenario” and least disruptive.

Timing and Process

• Most people we spoke with said it is unlikely tariffs will be implemented by February 1st.
  • Instead, Trump may use the date to initiate a 90-day evaluation period to assess the situation and decide on a long-term approach.
• The two-tier tariff system doesn’t seem reasonable. “A tariff on top of another tariff sounds ridiculous and not logical’, said one buyer from a major aluminum distributor.

Industry and Market Outlook

• No major immediate shifts are expected if the tariff stays at 10%.
• An LME broker said there is forward producer selling
• Some overreaction is happening in the market despite the relative calm.
• Hearing that trader’s physical books are pretty much stable from the larger type firms.
• Demand in the automotive industry is “OK,” though the sector remains slow.
• Construction demand is weak, tied to rising interest rates (10-year rate at 6.5%).
• Far East Market looks to be the opposite of what’s in the news. People are saying there is no big demand there. A large Japanese company said that demand remains steady.

Broader Economic and Geopolitical Insights

• A key priority for Trump is keeping Russia and China out of the U.S.’s “backyard.”
  • Noting particular concern about China’s control of the Panama Canal. The original agreement was for the Panama Canal to remained independent.
  • There is talk that Trump may attempt to take back control of the Panama Canal. People in the market said they see this happening.
• As for the Gulf, no significant economic issues there that the people in the industry seem to be concerned about.
• While things are relatively calm now, the majority of people we spoke to in the market did all agree on one thing- that the market activity for the next four years will be crazy!

Economics highlights