Dichotomy emerges as metal and energy react differently to trade wars

Oil refinery at night, Burnaby

ESCALATING trade war tensions and a deceleration of economic growth in China were taking the momentum out of metal producers, said Bloomberg News. Even companies that US president Donald Trump hoped would benefit are suffering.

“Weaker commodity prices are expected to weigh on earnings,” said RBC Capital Markets analysts in a note last week cited by Bloomberg News. The analysts remain “… cautious as China decelerates,” even as they acknowledged that a rebound in infrastructure spending could lift metal prices by mid-2019.

The Bloomberg World Mining Index has fallen 12% since the end of June as prices of many raw materials tumbled, said the newswire. Apart from the pain of lower cash flow, miners also faced higher cost that came with the surge in crude oil prices, it said.

“While Trump’s metal tariffs were intended to protect US companies, Alcoa, the nation’s largest aluminum producer, also took a hit as the levies boosted costs of shipping raw material into the country from its smelters in Canada,” said Bloomberg News in its article.

In contrast to the pressure that has fallen on metal producers, energy companies – including producers of coal – have benefited.

“There’s a dichotomy in performance between the metals and the energy side,” Peter Sorrentino, chief investment officer of Comerica Asset Management Group told Bloomberg News. “Industrial metals and even precious metals for the most part have been under pressure from a strong dollar, and most of the energy components have done better, from crude oil to even natural gas,” he said.