Trade war to hit base metals: UBS

By Jessica Yun
 — 1 minute read

The impact of the US/China tit-for-tat trade war will most likely be felt by the base metals sector of the Australian stock market, says UBS.

According to a report by UBS, commodity prices have been driven down due to the lower trade volumes and industrial output that have arisen as a result of higher trade barriers.

“Base metal producers are likely to feel trade war impact more acutely given there is more trade between the US and China for these commodities and they are less exposed to construction,” the report said.


Changes to pricing forecasts were “modest overall,” but the biggest changes were to commodities with more trade exposure whereas lower-scale changes would be felt by commodities more exposed to construction.

“Thus the most significant price change occurred with copper (-5 per cent), zinc & lead (-3-8 per cent), aluminium (-3-4 per cent) and nickel (-3-5 per cent).

“One may see mining companies, starting with the highest cost producers, move to curtail operations and reduce CAPEX in an endeavour to rebalance trade and keep cash flows positive,” the report said.

Meanwhile, bulk commodities stood to benefit from Chinese stimulus and were therefore more only modestly reduced, with iron ore price forecasts reduced by 2 per cent and metallurgical and thermal coal price forecasts down by 1–5 per cent.

The report also indicated that investors, who had returned to the mining sector in the last year, would be more inclined to depart the sector again given the likelihood of the trade war to negatively impact free cash flow and thus returns.

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Trade war to hit base metals: UBS
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