How Trump's tariffs could affect the commodity and energy sector

Donald Trump, the U.S. president, imposed duties on Canada and Mexico of 25% each and China a 10% tax on Saturday. He said the measures were necessary to fight illegal immigration and drug trafficking.

Canada and Mexico immediately pledged retaliatory actions, while China announced it would challenge Trump’s tariffs at the World Trade Organization as well as take other countermeasures.

Trump's decision has caused volatility on the commodities markets. Here are some reactions:

GOLDMAN SACHS

We still expect Canadian oil companies to ultimately bear the majority of the burden with a wider than normal discount of $3 to $4 per barrel on Canadian crude due to the limited export markets. The remaining burden will be borne by U.S. refined product consumers, who are expected to pay $2 to $3 per barrel.

We estimate Canadian gas exports to America could drop by 0.16 billion cubic foot per day (bcfd), as a result 10% import tariffs. This would have little or no impact on U.S. gasoline prices.

BARCLAYS

It is fair to assume all three parties (Canadian Producers, Refiners in the Midwest and End-Consumers) will share the cost of the new product equally.

"Tariffs are generally bad for oil, as they increase demand and strengthen the U.S. Dollar. We would therefore feel more comfortable if we could achieve a smaller Brent-WTI Spread."

We see further tariff escalation in a bullish way for gold up to $3,000 an ounce, silver up to $36 on a 6- to 12-month basis, and a bearish way, with copper down to $8,500 a ton within the next three-month period, based on ex-U.S. prices.

JP MORGAN

We maintain our tactically-bearish stance in the short term on base metals and expect LME 3M Copper prices to fall towards $8,500/mt. LME 3M Aluminum could also move lower, towards $2,400/mt, amid a pricing in of a risk premium in the near-term, given the increased economic and inflationary risk from tariffs.

The threat to the auto sector and the impact on industrial sentiment could cause a divergence between silver, palladium and platinum in the short term. We will continue to favor gold as our primary bullish asset for the moment.

RBC CAPITAL MARKETS

Tariffs will not lower gas prices in the United States. In fact, they may cause them to rise slightly over the next few months.

If tariffs are expanded further, gold prices in the U.S. will be higher than they would otherwise be. (Reporting by Anushree Mukherjee in Bengaluru; Editing by Jacqueline Wong)

(source: Reuters)