How does the U.S. steel and aluminum tariff policy affect commodity investments? MUFG provides a reference guide.

President Trump plans to impose a 25% tariff on all American steel and aluminum imported from all countries. According to agreements with Canada, Mexico, the EU, Japan, South Korea, Brazil, and other countries, the US imports about 25% of its steel supply, of which about 80% is currently duty-free. Mitsubishi UFJ Financial Group (MUFG) points out that the 25% tariff will increase import costs by $150 per ton. It will adjust the import parity of steel (hot-rolled coil, HRC) with the EU to $800-900 per ton, while the current price is $755 per ton. Meanwhile, in terms of aluminum, about 70% of the US supply comes from imports, with about 60% of the duty-free portion coming from Canada. MUFG believes that the 25% tariff will increase the Midwest Premium (MWP) from the current 30 cents/pound to 40-45 cents/pound (excluding transportation and other factors). Overall, although MUFG's outlook for the commodities complex in 2025 outlines modest increases in spot prices for commodity index investments, the current unusually broad potential policy adjustments strengthen the diversification role of commodities in 2025 investment portfolios. On February 9, President Trump announced that he would announce on February 10 a 25% tariff on all American steel and aluminum imports. Although the start date of the tariff has not been determined, President Trump stated that the tariff will apply to imported products from all countries. The US (and global) steel industry has been highly affected by trade protectionism. In 2018, President Trump imposed a 25% tariff on virtually all imported steel (Section 232 tariffs). While these tariffs still exist widely, the vast majority of US imported steel does not pay a 25% S232 tariff, with only 15% of imported steel paying tariffs by 2023 (these countries accounted for around 50% of imports prior to the introduction of S232 tariffs). In 2019, the Trump administration exempted steel imports from Canada and Mexico (about 40% of total US steel imports) from S232 tariffs. There are also tariff rate quota (TRQ) systems for specific quantities of imported goods (duty-free). In today's context, the US imports about 25% of its steel supply, of which about 80% is duty-free under agreements with Canada, Mexico, the EU, Japan, South Korea, Brazil, and other countries. MUFG believes that the 25% tariff will increase import costs by about $150 per ton, bringing the import parity of steel (hot-rolled coil, HRC) with the EU to around $800-900 per ton, compared to the current price of about $755 per ton. Meanwhile, in aluminum, about 70% of the US supply comes from imports, with about 60% duty-free from Canada. MUFG believes that the 25% tariff will increase the MWP from the current 30 cents/pound to 40-45 cents/pound (excluding transportation and other factors). While the reduction in newly built US inventories may provide some short-term cushioning, as these inventories may deplete relatively quickly, MUFG believes that in a scenario of a 25% blanket tariff, US MWP may increase towards 40-45 cents/pound. Given the differences in fundamentals, MUFG recommends selective investments in commodities in 2025: Energy (neutral to bullish): For oil, unresolved surpluses and high production capacities are bearish, but the dual tail risks of tariffs triggered by Trump and/or geopolitical uncertainties breaking through the range of 65-80 USD/bbl are real. As for natural gas, delays in US liquefied natural gas supply projects have pushed MUFG's expectations for a decline in US/EU natural gas prices to 2026. Base metals (neutral to bullish): Short-term tariff risk premiums will keep it range-bound until bullish Chinese stimulus measures and structural green transition demand arrive. Precious metals (bullish): Gold's unshakable bull market has become MUFG's most constructive belief for the second consecutive year, strengthened by a combination of "fear" (the preferred means of hedging geopolitical risks) and "wealth" (demand from emerging market central banks). Agriculture (neutral): US trade, foreign policy, broader geopolitical developments, and uncertain La Nia phenomena have increased volatility, but low inventory bases limit downside price risks.