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Informist, Monday, Apr. 7, 2025

 

By J. Navya Sruthi

 

MUMBAI – Imposition of reciprocal tariffs by the US and the resulting fear of a trade war and a global economic slowdown have pulled down base metal and energy prices, and analysts say respite is unlikely anytime soon.

 

US President Donald Trump's announcement of reciprocal tariffs on more than 60 trading partners ignited fear of recession in the world's largest economy, along with a global economic slowdown. Some of the US' top trading partners such as China have been hit the hardest – Trump slapped 34% tariff on China, 46% on Vietnam, and 32% on Taiwan. The new reciprocal rate on China adds to the existing 20%, bringing the total tariff on Beijing to 54%.     

 

Reacting to the move, China on Friday imposed additional tariff of 34% on all US goods entering the country. This raised risks of an all-out global trade war. While announcing its retaliatory tariff, China's State Council Tariff Commission said the US action was "not in line with international trade rules, seriously undermines China's legitimate rights and interests, and is a typical unilateral bullying practice".

 

The likelihood of a global trade war has weighed on prices of commodities. Brent crude prices fell to their lowest levels since April 2021, while West Texas Intermediate oil prices were at the lowest since March 2021. For copper, the concerns have brought an end to a bull run, with the three-month contract falling to $8,700-per-tonne levels.   

 

At 1713 IST, crude oil prices on the Multi Commodity Exchange of India were down 2% at INR 5,206 per barrel, against the closing price of INR 6,118 per barrel on Tuesday, before the US announced the tariffs. Similarly, the most-active April copper contract was at INR 811 per kg, down from INR 893.9 per kg before the announcement of the tariffs.

 

Sriram Iyer, senior research analyst at Reliance Securities, said he expects further correction for both crude and copper because the trade war is likely to intensify. "And of course, the fear of recession because of this will lead to further demand destruction for both copper and crude. I see crude possibly falling by at least another 5% to 7% minimum...," Iyer said. 

 

After Trump's announcement on Apr. 2, the eight member nations of the Organization of the Petroleum Exporting Countries and its allies added fuel to the fire, agreeing to increase crude oil production by 411,000 barrels per day in May. "The oversupply on the oil market is now likely to be larger in the second quarter, which speaks in favour of a lower oil price," Carsten Fritsch, commodity analyst at Commerzbank Research, said in a note. 

 

According to Iyer, the key level to watch out for WTI crude oil prices is $65 per barrel, while for Brent, it is $58-$59 per barrel. "If prices hold on to those levels, I think some support can or some buying can reemerge at those levels." 

 

While prices of gold and silver are also down, the reasons are different. Gold, a safe-haven asset, usually rises due to uncertainity around global trade. This time, prices of gold and silver have fallen du to sales by investors to cover their losses in equities and other asset classes, Iyer said. "So, if equity and other asset classes like crude and copper fall further, then I feel further correction in (precious) metals cannot be ruled out." 

 

However, continued weakness in the US dollar and growing bets of the US Federal Reserve cutting interest rates have provided some support to gold, with the decline much less compared to other asset classes, analysts said. 

 

The following table compares futures of commodities before the US announced tariffs and at 1720 IST on Monday, in INR.

 

Commodity	Closing price (01.04.25)	Prices at 1720 IST	Change (in %)
MCX gold June (per 10 gm)	90,503	88,570	(-)2.0
MCX silver May (per kg)	99,461	89,797	(-)9.7
MCX crude oil April (per barrel)	6,118	5,210	(-)14.8
MCX natural gas April (per mmBtu)	340.8	332.3	(-)2.5
MCX aluminium April (per kg)	244.6	232.7	(-)4.7
MCX copper April (per kg)	893.9	811.6	(-)9.2
MCX lead April (per kg)	178.8	175.50	(-)1.8
MCX zinc April (per kg)	267.65	250.55	(-)6.4

 

 

End

 

US$1 = INR 85.84

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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