Aluminium prices sunk to a new low on the year earlier this week due to market concerns that increased tensions between Washington, D.C. and Beijing are likely to set off a devastating trade war.
According to market experts, comments by United States President Donald Trump referencing a raft of new tariffs waiting in the wings should a trade accord with the People’s Republic of China not materialize sparked a steep dive in prices of primary aluminium.
“Comments overnight added further fuel to the fire in terms of the risk of further escalation and downside risk to Chinese growth,” opined Nicholas Snowdon of Deutsche Bank to Reuters.
“The concern is that if things don’t pan out in a positive way with [China’s Premier] Xi and Trump meeting, then we could be taking a further step in terms of deteriorating trade relations,” he continued.
The two are likely to meet this month at the upcoming Group of 20 (G20) meeting in Buenos Aires.
As China is the most prolific consumer of industrial metals on Earth and therefore the home of fully half of the world’s aluminium demand, a trade war may place purchasing at risk by putting the brakes on China’s economy.
Per Mizuho Bank in a recently published note, a similar slowdown two years ago “triggered a period of intense capital outflows from China, as markets anticipated policymakers to step up monetary easing, opening the path to (yuan) depreciation.”
“Given the sharp loss of growth momentum now, China could face a similar conundrum as in 2015-2016, although the magnitude of capital outflows has been far smaller in recent months,” the note continued.
SHFE’s closing on Wednesday saw December aluminium contracts drop to CNY13,930 (US$2,011.98) before ending the day at CNY13,960 (US$2,016.31). The day’s low was the market’s softest in exactly two years. Three-month aluminium at the LME bottomed out at US$1,961 (a 14-month worst) before closing out at US$1,965.