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The so-called Trump rally that ensued following the November election spread its wings beyond just the stock market.
For instance, commodities like copper rallied as investors turned increasingly bullish on base metals amid President-elect Donald Trump’s plan to boost infrastructure spending.
Barclays analyst Dane David is the latest to join the side of the bears. In a commodities research note that measures the likely impact of Trump’s infrastructure plan on metal prices, he wrote, “Hopes for a large infrastructure boost look premature.”
While nobody knows whether Trump will deliver on his spending promises, or what their impact would be, extrapolation from past data offers some clues.
“The 2009 stimulus should provide an excellent case study of what happens in the US when billions of dollars are spent on steel- and copper-intensive projects,” David said. “Of the $837bn allocated to spending in the stimulus, $105.3bn was allocated to US infrastructure spending, the breakdown of which is shown in Figure 5.”
And its impact on metal demand was nothing to write home about.
“The net effect on copper was modest at best,” the note said. “It was the US auto sector, and efforts designed to rescue and grow that sector in 2009 (bailouts, ‘cash for clunkers’) that supported copper consumption in the years after the Great Recession, not the stimulus.”
Things were no different when it came to steel. “In terms of raising steel production above and beyond the normal trendline, the stimulus was a failure.”
David used this historical precedent to estimate that “an additional $100bn of construction spending in the US yields a rise in consumption of 73kt of refined copper, 4.7mnt of steel, and 7.5mnt of iron ore.”
So, he concluded, “contrary to some very bullish expectations, additional demand stemming from Trump’s infrastructure plans is limited, though not necessarily insignificant.”