The US economy should continue to do well as Donald Trump causes trouble around the world, and John Meyer, an analyst at SP Angel, thinks these juniors will be beneficiaries.
How much of an impact is trade war rhetoric from both the US and China having on metal prices?
So, looking at Donald Trump and the impact he's having on the world, particularly with regard to global trade and increasing tariffs, we don't see this as a major problem. In fact, if anything, it’s a bit of a benefit.
What it means is companies around the world will start to increase their stockpiles. If you’re a US company you are going to increase your inventory levels in anticipation of more local demand. If you're in China, okay, it's possible you might decrease your inventory, but the local policy-makers are improving the local environment. They’re elongating the quantitative easing that they’ve had in place for some time and putting in place measures to keep those companies growing.
So, for us, the impact of tariffs and trade barriers, that serves to increase local premiums but doesn’t necessarily mean it's a big negative on our sector.
How do you think this trade spat will end and what are the implications for equity markets?
I think we've reached a point where, actually, it hasn't been so much free trade, it's been unfair trade. China with quite onerous tariffs, and the US with very low tariffs. Now, I think things are being rebalanced.
That's not necessarily a bad thing to help European and US manufacturers to recover and I think that is generally good for commodity demand, all round. China has moved to support credit markets locally, to help local companies. Yes, there will be negative impact on Chinese company earnings and that has knocked the Chinese stockmarket. That had a knock-on impact with the United States and with our own major markets but that was short-lived and, actually, in reality UK and US manufacturers should do a bit better as a result.
Will the trade wars impact the majors?
So, if we go back to where the trade war thing started with Donald Trump, it was all about looking after the US steel industry and, of course, in Europe, the European Union tries to look after the European steel industry, as well.
China was going to flood the western world with cheap steel and continues to overproduce on steel because it struggles to pull back its steel production. Steel production, particularly in China with the blast furnaces, uses a lot of coking coal. This is typically produced by Rio Tinto, BHP Billiton, Glencore, they're the big producers of it. But it’s not a huge part of their earning stream and the prices haven’t particularly collapsed just yet, this is still relatively good.
So, although there will be less, I don’t think there’ll be any greater demand for coking coal going forward as blast furnaces get pulled out of production. I still think it's going to be a fairly robust market for them.
Are any juniors worth tracking as a result of the trade wars?
So, with the ongoing trade wars and Donal Trump causing trouble around the world, we do expect US industry to carry on doing well and US growth to be strong.
Companies that might benefit from that are Sunrise Resources, which is producing pearlite that goes into cement and concrete in Nevada. We've got Phoenix Global Resources in Idaho and we’ve got Strategic Minerals, which is producing magnetite for sale locally within the market of New Mexico. So, three companies there that I think will continue to benefit from US growth.
*Phoenix Global and Strategic Minerals are represented by SP Angel.
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