We are seeing an overreaction to US tariff imposition: Jonathan Barratt, AyersAlliance

Talking to ET Now, Jonathan Barratt, CIO, AyersAlliance, says the US's tariff imposition may lead to a trade war in some commodities.

Edited excerpts

What do you think would be the impact of trade barriers on commodity markets? Will it create a near-term impact on the demand-supply and that is why it is important for price movements of major commodities?
We have seen a general weakness across the board in a number of mineral spaces as a result of the imposition, which has also crept over to the major indices.

The rhetoric is indicating that it is quite negative for those producing aluminium and steel. But I think at the end of the day new markets will be found, so this imposition is not all that negative.


However, there is a lot of negative news out there opposed to the tariffs but at the end of the day US don't want to do business with people and they may put the tariffs up.

As a result there may be retaliation and we may even see war on some commodities but I think it is too early to tell yet.

Such sort of trade barriers generally hit the bull run. The commodity prices were going up, at least most of the LME ones, and with such trade barrier coming in it gives a sense that prices were going too far out and that is why you are seeing countries trying to protect their companies.
I don't think that is exactly what we are seeing. We are seeing countries unsure as to what is happening and and there is a lot of rhetoric in the market saying that all these tariffs are going to be recessionary.

There is a negative thought about all of this at the moment and it will have an adverse effect on commodities, which otherwise should have been a positive first quarter.

People had seen this rally and they started to take profit. Now that there is a little bit uncertainty, people will stand to the sidelines to see if there is any movement in commodities.

We have seen the US come out and do this before. They have had problems but US is quite firm on the back that they are protecting their own industry. They have got the right to do that. I think we are seeing too much of an overreaction to this imposition.

My concern is in relation to China - very soon the winter curbs that have been put in place for steel and aluminium are going to be lifted. Do you think we may see a global glut scenario coming back again to the metals market?
No, I do not think so. What I do see is that China in a very diplomatic way is trying to reduce its capacity. It has been responsive to the 2016 WTO concern where one was worried that China was producing too much capacity. China for the last two years has been trying to reign in that capacity in a way that it does not disrupt the market.

Given two-three years, I think China would be more responsible as they are reducing their capacity; using smelters which are more pollution tolerant. China is doing all this but not as fast as the US wants it to. And I think in those terms it is a little bit disruptive what Donald Trump has actually done. I feel China was moving in the right direction to reduce its capacity.

The Department of Commerce had put forward approximately three options back in January - one was a 24% tariff and about a 7.7% tariff for aluminium; there was also a whopping 53% tariff on 12 countries that included even China and India and about a 23% tariff in just five countries and just about an import quota for the rest of the countries and then there was a final option of an import quota for all countries. We have already had a lot of countries reacting back very sharply threatening the US saying that they will be taken to the WTO. At this point of time do you expect that the policy will be a little more nuanced as opposed to just a blanket 25% tariff or do you think this could actually go through and Trump could actually stay through with his words?
I would like to think there is a little bit of flexibility in there and it is no doubt about it. You know everyone can go to the WTO and the WTO will obviously make a decision but other countries could retaliate. So, when you actually look you can see the steel industry benefiting but agricultural will start to not benefit at all because tariffs on soybeans will go out of China. So there are plenty of different ways and which is why we do not like this development of a trade war.

May be the WTO will come up with some results but I still think it is too early to see how this will affect everyone and what sort of retaliation the government will be looking at.