Higher US tariffs on China dim demand outlook for industrial metals

SHANGHAI, Aug 26 (SMM) – Trade conflicts between China and the US exacerbated on Friday August 23 as the US President Donald Trump announced an additional 5% tariff on some $550 billion worth of Chinese goods, hours after China hiked tariffs on $75 billion of US products. This is set to pose a further threat to global growth and demand for industrial metals, SMM believes. 

On October 1, tariffs on $250 billion of Chinese products will increase from 25% to 30%. Tariffs planned at 10% on $300 billion worth of such goods on September 1 will rise to 15%.

China’s exports of copper-related products to the US were mainly end-user products, including motors, home appliances, wire and cables, which accounted for some 3% of copper consumption in China. Such amount of exports will receive negative impact from the potential higher US tariffs, which have already sparked concerns about copper consumption. 

Copper raw materials, such as concentrate, scrap, copper cathode, and processed materials in China were not covered in the list. 

In the domestic aluminium sector, finished products will most likely feel the impact of higher US tariffs as nearly all domestic primary aluminium processed products that went to the US were already subject to anti-dumping and countervailing duties. Orders for aluminium finished products, such as automobile wheel hubs, components, and parts, at major Chinese produces should be monitored in the short term. 

An SMM survey found that some contracting parties had come up with ways to minimise risks as they agreed to share any costs incurred by higher tariffs. This could help to cushion the impact of weakening demand.

The latest re-escalation in the trade war is also expected to further drag on China’s imports of lead concentrate and its exports of lead-acid batteries, while the current tariffs already took a toll on their trade flow.   

Lead smelters in China started looking for alternatives to US-originated lead concentrate a year ago when the trade conflict between the world’s two largest economies began. In 2018, the proportion of US lead concentrate accounted for 9.8% of China’s total imports, down from the previous 16-18%. 

Producers of lead-acid batteries in China had been moving capacity abroad to avoid tariffs, SMM learned. Customs data showed that domestic exports of lead-acid batteries in the first half of this year decreased 14% from the same period a year ago. 

While a closed import arbitrage window will see limited impact from the latest US tariff threat on China’s exports of refined tin, Chinese exports of mobile phones and other electronic products will be hurt. This is expected to depress tin ingot consumption from downstream sectors of tin solder and chemicals in south China from September. 

Customs data showed that China exported some overall 384 mt of refined tin in June, down from 1,169 mt in April, as falling prices of London tin prevented an outflow of Chinese tin. 

Exports of domestic nickel-cadmium batteries could be dented as customs data showed that some 6.7 million nickel-cadmium batteries were moved to the US in 2018, accounting for 11% of China’s total exports. 

Other than that, the Chinese nickel market may feel a minimal impact from the trade war given the limited exports of nickel ore, refined nickel, and nickel pig iron. 

The stainless steel sector will also be little affected as less than 1% of China’s exports of stainless steel plate and coils, which took up three-quarters of the total stainless steel exports, went to the US in 2018.