Despite displaying steely resolve to trumpet his campaign promises and verbalise his thoughts, the recurring theme in early stage commentary on the presidency of Donald J. Trump is that of uncertainty.
For many, the election of Trump as the 45th President of the United States came as a remarkable surprise, and the first few months of his leadership have provided plenty of aftershocks.
Operating under an insular, America-centric strategy of protectionism at the expense of the global agreements and trade which were long negotiated under his predecessors, it’s hard to know exactly how the Trump presidency will affect commodity markets and players into the coming years.
BHP Billiton head honchos Andrew Mackenzie and Jac Nasser were afforded an audience with the president-elect ahead of his inauguration in January – an exercise widely reported as relationship building, despite the global miner’s enthusiasm for free trade.
But Mr Mackenzie expressed serious concern over the Trump government’s protectionism in an interview with Bloomberg TV in February, labelling the potential consequences of free trade restrictions as “pretty bloody awful”.
The BHP boss told the network while promises around tax and infrastructure growth had inspired business confidence, US protectionism would seriously hamper global economic growth.
“Long-term economic growth now for the world is probably around three per cent; if we’re going to continue on the journey to get more people out of poverty we’re going to have to get that to four per cent,” he said.
“That won’t happen under a protectionist regime and protectionist leadership in the US.”
National Mining Chronicle caught up with some local experts to get their take on the Trump presidency and its impact on Australia’s mining sector.
Promises and uncertainty
Curtin University Associate Professor Lee Smales holds a PhD in finance, prior to which he spent eight years working for Citigroup, trading foreign exchange and interest rate derivatives.
Professor Smales’ research focuses largely on market responses to news events, but with Trump he finds it difficult to read how much of what is promised will be actioned.
“Much depends on how much of his agenda is enacted and what the outcome of his foreign and trade policy is,” he said.
“On the one hand, there are stimulative measures – corporate tax cuts, removal of red tape, infrastructure spending – that will positively impact commodity prices and the resources sector.
“On the other we have the possibility of a trade war, if not a real war, that would be very negative in the longer term. Ironically, a real war is likely to be good short term, as demand for commodities would surge.”
Whatever happens in these areas, Professor Smales said two mineral commodity areas stood to be impacted most – industrials and precious metals, alongside oil and gas.
“Industrials would include any materials that are going to benefit from increased business investment and be used in infrastructure building, such as copper or iron ore,” he said.
“They are going to be heavily influenced by the prospects for increased global growth that arise from the stimulative measures. Arguably, much of the positive response has already occurred – can iron ore really maintain $90 plus?”
The uncertainty caused by the Trump administration’s leadership is likely to have a more sustained impact on precious metals, according to Professor Smales.
“Precious metals have remained well-supported despite rising US interest rates and a strong US dollar,” he said.
“This suggests to me there are some investors out there who are buying safe-haven insurance against possible turmoil resulting from Trump’s policies.
“I wouldn’t be surprised if this continued.”
Reading into the performance of markets in response to the first month of Trump’s presidency created mixed feelings for Professor Smales.
“The fact that asset/commodity markets have performed well despite possibly the worst first month of a presidential term is somewhat reassuring – how much worse can it get?” he said.
“But then there is a historical precedent for markets to underestimate risk, so we do need to tread carefully.”
Make demand great again?
A continuation of precious metal investment would certainly be of interest to Huntsman Resources Managing Director Nigel Ferguson, as the gold explorer ramps up plans to list on the ASX. With projects in Western Australia and the Democratic Republic of Congo, Huntsman has a global gold footprint and plenty of senior experience to lean on.
Mr Ferguson feels the company’s plans to list come at a good time for the yellow metal, and that Trump is a contributor to that trend, but not necessarily the cause.
“He’s certainly put a bit of uncertainty into it,” Mr Ferguson said.
“I do think gold was starting to come back anyway – I think it was beginning to gain a bit of ground.”
Mr Ferguson said despite a US aversion to global trade, he felt the significant commodity market impact of the Trump presidency would be driven by infrastructure development.
“Where I think the Trump government is going to have a lot more influence is in all these infrastructure projects he’s talking about – defence, energy, transportation, and things like dams and ‘the wall’. That can only lead to demand in products,” he said.
“Hopefully the demand is in the right area – steel, copper zinc, tin – all those things are going to be required for the building industry.”
Mr Ferguson said while the US would source from within the country where it could, the signs were good for Australian commodities should the promised infrastructure development go ahead.
“You’ve got China and India still wanting products, still expanding at some rate, and then you’ve also got the US starting to ‘become great again’ – I think you’re probably going to be seeing demand,” he said.
“It will be a case of ‘if we don’t have it over here then we’re going to have to source it from somewhere’. If it isn’t iron ore from Brazil then it’s going to be iron ore from Australia.”
Huntsman launched its prospectus in January, days before the presidential inauguration, and was raising towards its listing at time of print.