Tariffs prepare path for US metals production boost: Goldman Sachs

“Commodities are front and center in Trump's trade and foreign policies,” writes a research director with New York-based Goldman Sachs in a late February report released by the investment bank.

In a three-page section of the 31-page report, Goldman Sachs Co-Head of Global Commodities Research Daan Struyven writes in part, “We estimate a limited boost to United States energy and metals supply from tariff policies in the short run but a potentially bigger boost to supply from dominance policies over the longer run.”

In mid-February, the administration of President Donald J. Trump announced the creation of a National Energy Dominance Council. While that entity seems poised to focus on domestic oil and gas production, the administration also has taken several measures and made clear its attention to protect and support domestic mining activity and metals production.

In a section of the larger report, titled “Trump tariffs: Mostly talk, or big action?,” Struyven indicates that ramping up minerals and metals output is not something that fits compactly into a four-year presidential term.

“On the metals front, we don’t expect large boosts to U.S. production from the 25 percent steel and aluminum tariffs,” the researcher writes. “While the imposition of a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports in early 2018 was associated with the largest annual increase in U.S. steel production since 2011 and in primary aluminum production since 2012, the difficulty in securing long-term competitive power contracts will likely keep the two idle U.S. aluminum smelters offline.”

Struyven says, though, that aggressive deregulation measures could create the conditions for a domestic minerals and metals sector spending boost. “Many of the administration’s commodity-related measures are infrastructure related, which suggests longer-term support to commodity supply, including [from] reduced mining regulatory restrictions.”

The researcher adds, “The administration could also undertake more significant and sustained policy shifts, especially in certain sectors that China has traditionally dominated—including processing critical minerals, solar panels and electric vehicles (EVs)—which would also suggest upside risk to U.S. production over the long run.”

In the recycled-content metals sector, producers have been adding capacity in the past decade regardless of which political party controls the White House.

Each of America’s largest recycled-content electric arc furnace (EAF) steelmakers—Nucor Corp., Steel Dynamics Inc. (SDI) and Commercial Metals Co.—have built new mills in the past 10 years and remain in the process of adding melt shop capacity.

In the case of SDI, it has entered the recycled-content aluminum production industry, another metals sector that has seen widespread additions in new melt shop capacity in the previous 10 years. In addition to SDI, companies including Norway-based Norsk Hydro and Kentucky-based Owl’s Head Alloys have taken measures to boost output in the U.S.

While America continues to import about half of the copper it uses, even in that sector recycled-content production facilities have been added in the past several years, including by two Germany-based companies: Aurubis AG and the Wieland Group.