The ‘Trump rally’ that ensued following the November election spread its wings beyond just the stock market.
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 if Trump would deliver on his spending promises, or what its likely impact will 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 noted. “Of the $837bn allocated to spending in the stimulus, $105.3bn was allocated to US infrastructure spending, the breakdown of which is show in Figure 5.”
“The net effect on copper was modest at best,” the note read. “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 “contrary to some very bullish expectations, additional demand stemming from Trump’s infrastructure plans is limited, though not necessarily insignificant,” he concluded.