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Trump’s Revamp of America to Boost Metals to Gas: Goldman

  • Rise in infrastructure spending to help steel, zinc, diesel
  • Less policy uncertainty seen boosting investment in gas

Donald Trump’s promise to revive American infrastructure means commodities used to build everything from airports to bridges will benefit under his presidency, according to Goldman Sachs Group Inc.

Spending by the Republican, who is set to enter the White House after defeating Hillary Clinton, will support construction activity and boost steel, iron ore, nickel, zinc and diesel, analysts including Damien Courvalin and Jeffrey Currie said in a Nov. 9 report. Trump’s proposal to roll back emissions-reduction targets could lift demand for natural gas as less uncertainty over policy boosts investment in an already competitive source for power and petrochemical production, according to the bank.

Trump has signaled spending of more than $500 billion to rebuild U.S. infrastructure with a pledge to at least double Clinton’s estimated $275 billion, five-year plan for roads, airports and bridges. The billionaire businessman, who has never held public office, defeated his rival after a campaign that exposed searing divides in the American public. He’ll have a Republican-controlled Congress behind him after the party shocked Democrats by keeping control of the Senate.

“The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the U.S.,” the analysts wrote in the report. “Without specific details it is hard to quantify the impact on commodity demand, however such policies would support steel, iron ore, zinc, nickel, diesel and cement.”

While the president-elect is seen removing policy uncertainty and triggering greater investment in the U.S., an increase in perceived geopolitical risks and possible restrictions on international trade have rattled global markets. Prices of raw materials and shares of the companies producing them recovered after being whipsawed as investors wrestled with the implications of Trump’s win on Wednesday.

Under current consumption patterns, Trump’s infrastructure plan may have only have a “modest impact” on the global steel market as the U.S. only represents 7 percent of worldwide demand and the nation’s steel per capita consumption is only half of China’s, according to Goldman. However, U.S. and developed-market infrastructure spending has been stagnant since the 1970s, suggesting that a catch-up in investment could still lead to a significant recovery in steel demand, its analysts said.

U.S. infrastructure spending is unlikely to kick in until the third quarter of 2017, at the same time as the impact of Chinese stimulus is likely to fade, “so rather than be outright bullish it may simply smooth the path of slowing Chinese demand growth for base metals in the second half of 2017 and 2018,” according to the bank.

Copper Impact

The impact on copper demand would be limited, because the metal is more closely tied to housing activity involving wires and appliances, Goldman said. Supply growth is accelerating into the year-end with weak housing starts, lower mortgage issuance and property sales in China -- all pointing to sequentially weaker demand growth, according to the bank. It reiterated the view that zinc prices will outperform copper.

All industrial metals advanced on the London Metal Exchange, with zinc adding 1.8 percent, nickel up 0.3 percent and copper advancing 3.4 percent by 2:28 p.m. London time. The LME index on Wednesday rose 2.1 percent to its highest level since June last year.

Goldman’s outlook on gold remains mixed. While fiscal and geopolitical uncertainty, as well as potential inflationary fiscal spending and import tariffs, may be positive for bullion, stronger growth could be bearish, the bank said. With an interest-rate hike by the Federal Reserve still expected to come in December, the lack of policy details until the first half of next year keeps the outlook mixed for the commodity considered an investor safe haven.

The precious metal was on the rise again Thursday after paring its biggest increase since the Brexit vote in the hours following Trump’s win on Wednesday. Gold for immediate delivery advanced as much as 0.9 percent to $1,288.81 an ounce on Thursday, according to Bloomberg generic pricing.

Gas Boost

While’s Trump’s proposals to roll back emissions-reduction targets would suggest greater demand for coal, natural gas might be the real beneficiary, according to Goldman. The fuel is competitive with coal in the power industry as well as against liquids in the petrochemical sector.

“China’s policy to support domestic and in turn seaborne coal prices, which we believe will likely be in place until the end of the decade, further increases the competitiveness of gas in the power market globally,” the analysts wrote.

Trump’s victory will also support U.S. oil and gas production, with less regulation on exploration and a lifting of drilling restrictions in certain locations, the Goldman analysts wrote. But the impact could be initially offset from renewed sanctions on Iran, which could prompt the Persian Gulf state to maximize production in the short term rather than comply to an OPEC freeze, they said.

The effect on agriculture will probably be bearish for U.S. demand and acreage, the bank said. The introduction of tariffs on imported goods could further raise the risk of retaliatory measures, which would affect U.S. agriculture, given the size of U.S. corn and soybean exports to China, Goldman said. This would then increase demand for Latin American exports to the detriment of U.S. shipments, according to the bank.

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