The tax reforms outlined by the Trump government may still be short on specifics. What is, however, clear is that the corporate tax rates may be eventually cut to 15%. In addition, the pass-through companies like partnerships and hedge funds that are currently paying 39.5% tax will be also required to pay only 15% tax. Broadly there are 5 announcements made by Donald Trump. For individuals there will be a simplification of tax brackets and doubling of the Standard Deduction. For corporates, there will be reduction in corporate tax rates, repeal of the alternate minimum tax (AMT) and the repeal of the inheritance tax. These five items put together will increase the US budget deficit by nearly $7.2 trillion. There will be a benefit of $2 trillion from the withdrawal of all exemptions other than mortgages. There will leave the US budget with a net deficit of $5.2 trillion as an outcome of the tax reforms.

It needs to be remembered, that the two cornerstones of Trump’s campaign were tax cuts and infrastructure spending. Going by initial announcements, Trump seems to have largely stood by his commitments on tax cuts. It can therefore be assumed that he will also stand by his commitment on infra push. The question then is what will be the implications of this move on global commodities. We focus on four key commodities here; Ferrous, Non-ferrous, oil and gold.

How the Trump plan will impact ferrous commodities
In terms of steel consumption, US may still not be even a patch on China. While China accounts for nearly 45% of global steel consumption, the US accounts for just about 7% of the global steel consumption. But that is more of static information. What matters is that for the month of March 2017 US steel production was 3.4% higher compared to the year ago period. Even world steel production was up by 4.6% in March 2017 at 145 million tonnes. The impact of improved demand is also visible in prices of Hot Rolled Coils (HRCs) which moved up by over 16% in 2016. The added boost could come from the Trump tax plan. Remember 70% of US steel consumption goes into the construction industry. Corporate tax cuts may trigger a construction boom in the US triggering off higher steel demand and prices. Similarly, if the $1 trillion infrastructure investment over 10 years also fructifies, the multiplier impact on steel could be huge. Steel could really be the one sector to benefit substantially from the tax plan; both in terms of demand and prices.

How the Trump plan will impact non-ferrous commodities