BlueScope and Orica on edge as the start of US tariffs up-ends markets
Australia’s stock market fell sharply for a second day on tariff mayhem as the nation’s biggest steel producer said it was urgently seeking answers through diplomatic and business channels.
Australia’s failure to win an exemption from a growing trade war with the US sent local shares sharply lower for a second day running as the nation’s biggest steelmaker BlueScope sought diplomatic talks with Washington over the tariff standoff.
Australia’s stock market fell as global markets remained risk averse on fears aggressive US trade policies threaten the global economic growth outlook.
The ASX 200 index closed down 1.3 per cent at 7786.2 points after hitting a seven-month low of 7733.5 points. It fell well below the 7815 opening level that was projected by overnight futures after a 0.8 per cent fall in the S&P 500 on Wall Street.
While BlueScope stands to benefit from US President Donald Trump’s tariffs on steel imports, the Australian steelmaker said it was disappointed by the decision and noted its $5bn, three-decade investment history in the US where it employs more than 4000 workers. “A tariff exemption was negotiated during President Trump’s first term. We are disappointed not to have received similar exemption status, for now,” a BlueScope spokesman said.
“We are working with the Australian trade and diplomatic staff in Canberra and in Washington, and with a wide range of senior representatives in Congress to ensure the BlueScope investment proposition is fully understood.”
BlueScope has capacity to produce about three million tonnes a year of steel in the US, and 200,000 to 300,000 tonnes a year of exports from its Australian operations to the US.
It expects to see “the positive impact” from an improvement in steel prices as a result of the tariff move.
Former Treasury secretary and National Australia Bank chair Ken Henry was more explicit with his condemnation of the US government move.
“A world of tariffs would be a very stupid world, and we have to do whatever we can to keep the world open and to avoid being drawn into a tit-for-tat tariff retaliation,” Mr Henry told The Australian. “We know from history that (trade retaliation) doesn’t end well and so we have to do whatever we can to keep the world open. Everybody should know it’s trade that has underpinned human development for centuries”.
Chemicals and explosives maker Orica said consumers would be slugged with higher costs in a hit to the economy following Trump’s escalation of a trade war, with its chief executive warning tariffs could even double given the acceleration of geopolitical volatility.
Orica, which counts the US as its second largest market, said business needed to strap in given uncertainty over the next moves.
“I don’t think there’s any economy in the world that will not respond to tariffs. There will be a response,” Orica CEO Sanjeev Gandhi told investors. “In the end what’s going to happen is the consumer is going to pay. It will all wash out in the end.”
Australia has not been spared from steel and aluminium tariffs and the boss of Orica, the world’s largest manufacturer of commercial explosives, said it was unclear if further trade penalties would land.
“Someone has to pay for these costs. So 25 per cent tariff today, 50 tomorrow and maybe 100 per cent the day after. Who knows. But those costs have to be paid by somebody and in the end it might hurt consumer demand.”
Most Australian sharemarket sectors fell with the consumer discretionary, industrials and financials underperforming the index as Wesfarmers dropped 2.6 per cent, Brambles lost 2.6 per cent ex-dividend and major banks were off by 1.4 to 2.1 per cent. ResMed dived 4.8 per cent, Woodside lost 2.2 per cent, BHP and Rio Tinto fell 1.8 per cent, James Hardie fell 2.6 per cent.
Australia also risks a downturn in its $138bn iron ore industry as a global trade war dents China’s steel industry with tariffs on Beijing’s electric vehicle industry also adding to slowdown fears, Orica noted.
China has pledged to cut steel output as its economy slows along with the US tariff hit, signalling softening demand for iron ore, while its automotive sector also faces hurdles.
“The second concern is China, which is not new. We’re talking the last four years for China. Property was the first challenge and now it has become the automotive sector and a lot of steel goes into the automotive industry,” Mr Gandhi said.
Markets were also watching the threat of tariffs on copper. Citi analysts are forecasting that while potential US copper tariffs were likely to impact consumption, bottlenecks in supply globally will largely balance this out.
“Despite an anticipated slowdown in copper consumption following broader US tariff escalation, physical copper supply is likely to remain under pressure this year; we expect only modest mine and scrap supply growth,’’ the broker said.
Experts broadly expect a tariff on copper to be introduced by the US by the end of the year, after a Section 232 investigation into the commodity was kicked off by the US Department of Commerce.
Australia’s exports to the US are minuscule with the bulk of production flowing to China and Asia.
Citi pointed out that the US exports more copper in ore and scrap than it imports in refined form, and that a sufficiently high tariff could have the desired effect of onshoring processing.
“The US exports more copper in ore and scrap than its net refined copper imports, so on paper it could negate its refined copper import reliance by processing this material domestically,’’ Citi analysts said.
“A long-term 25 per cent copper-specific tariff may be enough to drive capacity builds given several years and sufficient assurances on tariff longevity, but a 10 per cent tariff would likely be insufficient to move the needle. If the US could process all the copper scrap it exports domestically, that alone would reduce its net import reliance on refined metal from about 45 per cent to about 10 per cent all else being equal.’’
Tariff talks around copper have also led to a premium for physical copper deliveries to the US, where prices are trading at a premium to the London Metals Exchange price, setting up an arbitrage opportunity.
Morgan Stanley says it sees “room for copper to keep rising” with mine supply cuts ahead of normal rates.
Chile dominates the value of copper imported into the US by value, with 36 per cent, followed by Canada with 23 per cent, then falling away sharply to Germany with 5 per cent.
Australian pharmaceutical companies canvassed by The Australian recently said they were hopeful of a carve out for both pharmaceuticals and medical devices from tariffs.
However for some companies such as ResMed, which manufactures in the US, any new tariff could be a positive, as it would likely hit its competitors.
ResMed boss Mick Farrell said the Trump administration in the US could be a tailwind for the company, likely locking in a supportive tax environment while potentially imposing tariffs which would disproportionately hit its competitors.
Mr Farrell said, speaking both as chief executive of ResMed and as chair of industry lobby group AdvaMed, he would prefer that medical devices be carved out of any tariff regimes should they be implemented.
But with ResMed manufacturing its sleep devices in jurisdictions such as Sydney, Singapore and the US, the risk to the company from Trump’s promise to impose tariffs was not a concern.
Additional reporting: David Rogers
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