Trump's infrastructure plan probably won't provide a big boost to metals

The 'Trump rally' that ensued following the November election spread its wingsbeyond just thestock market.For instance, commodities like copper ralliedas investors turned increasingly bullish on base metals amid Trump's plan to boost infrastructure spending.But now, with history suggestingthat the 'Trump rally' will end on inauguration day, doubts over the impact of infrastructure spendingon metal priceshave also grown.Barclays analyst Dane David is the latest to join the side of the bears. In a commodities research note that measuresthe 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, orwhat its likely impact willbe, 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."And itsimpact on metal demand was nothing to write home about."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 thishistorical precedenttoestimate 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 Trumps infrastructure plans is limited, though not necessarily insignificant," he concluded.SEE ALSO:Netflix is set to burn $2 billion in 2017, and it's the big thing that worries Wall StreetJoin the conversation about this storyNOW WATCH: Here's how to use one of the many apps to buy and trade bitcoin
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