Trump Rattles Metals Giants as China Group Decries `Stupid' Levy

(Bloomberg) -- Donald Trump’s swipe at foreign metals producers is rattling equity investors in the heart of the world’s commodity market.

As China decried the U.S. president’s plan to levy stiffer duties on steel and aluminum, and banks warned of a looming trade war, shares in Asian mills and smelters dropped. Worst hit were South Korean and Japanese steel producers, for whom the U.S. is a major buyer, and aluminum smelters in China, the world’s biggest exporter of the metal.

Trump said the U.S. will impose tariffs of 25 percent on imported steel and 10 percent on aluminum for “a long period of time,” and he expects to sign a formal order next week. While he has made no secret of his intention to protect American interests against foreign markets, the threat that other nations will retaliate is prompting concern that key export markets will be shut off to producers around the world.

“Asian steel producers generally will be the worst hit given that they are the biggest producers,” Gavin Wendt, senior resource analyst at MineLife Pty in Sydney, said by phone. “There would naturally be more of an impact on them in terms of volume.”

Steel mills led losses with South Korea’s Posco, Japan’s Nippon Steel & Sumitomo Metal Corp. and the listed unit of China’s biggest producer, Baoshan Iron & Steel Co., all tumbling more than 4 percent. Aluminum smelters also slid with UACJ Corp. down 2.4 percent in Tokyo and China Hongqiao Group, the country’s biggest producer, sliding 2.5 percent.

Much of Trump’s protectionist agenda is directed at China, although the Asian nation isn’t a major exporter of steel to the U.S. That didn’t stop shares in its biggest mills dropping as news of the tariffs broke. In addition to Baoshan, notable decliners included Hesteel Co. and Angang Steel Co.

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“This is a stupid trade protection measure, which will only make the U.S. weaker instead of stronger,” Li Xinchuang, the vice chairman of China Iron and Steel Association, said in a Wechat message. “Over-protection of the U.S. steel industry will only make the industry more outdated and raise costs for industries that consume steel, making them less globally competitive.”

China accounts for just 2 percent of U.S. imports, and its shipments generally are falling as robust domestic growth soaks up metal and the government cuts capacity as part of a drive to clean up the environment. Still, the prospect of tit-for-tat retaliation by producers around the world was enough to spook investors.

The planned tariffs raise “risks of an all-out trade war, which could dampen economic growth and weigh on the sector,” Australia & New Zealand Banking Group said in note.

The impact is potentially greatest on China’s aluminum industry, the fourth-biggest supplier to the U.S., and Aluminum Corp. of China Ltd. lost 1.7 percent in Hong Kong on Friday. The U.S. took 14 percent of China’s aluminum exports last year, as the Asian nation’s overseas shipments and production both rose to a record.

The tariffs “overturn international trade order,” and “other countries including China will take relevant retaliatory measures,” Wen Xianjun, the vice chairman of China Nonferrous Metals Industry Association, said via Wechat.

It’s not all bad news in Asia. Australia’s BlueScope Steel Ltd., which operates a mill in the U.S., rose 0.9 percent. The company’s Chief Executive Officer Mark Vassella said on Bloomberg TV on Feb. 26 that it expects a positive impact on earnings at its North Star plant in Delta, Ohio to outweigh any losses on U.S. exports.

Trade War

Japan’s Yamato Kogyo Co. climbed 2.9 percent after SMBC Nikko said in a report that the company has a “large H-beam operation” in the U.S.

Still, the threat that Trump’s move will spur retaliation around the world loomed heavily over markets.

“This looks part of a broader move by the U.S. to keep China from taking the global leadership in businesses -- not just in steel and aluminum but more advanced industries, such as cars and semiconductors,” said Yoku Ihara, head of Growth & Value Stock Research of Japan. “This could be the beginning of trade frictions turning serious.”

©2018 Bloomberg L.P.

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