Representatives from Mexico, Canada and the US gathered in Washington on Wednesday for the start of long-awaited NAFTA renegotiation that could have serious implications for international metal markets. The talks, a fundamental pledge during President Trump’s election campaign, aim to revamp and modernize the 23-year old free trade agreement that has helped quadruple US-Mexico-Canada annual trilateral trade to above US$1 trillion since taking effect.
Regulations for the mining industry in North America will be a key point of discussion on all sides. President Trump, who described NAFTA as a “total disaster” during his campaign, repeatedly promised to create new jobs for US coal miners during his tenure. He has already acted on this commitment, announcing plans to pull out of the Paris Climate Agreement – which requires countries to reduce reliance on fossil fuels – and opening a new coal mine in Pennsylvania in June.
The governments of both Mexico and Canada, meanwhile, will be keen to protect the extensive cooperation they enjoy in the mining sector. Since NAFTA was signed, foreign companies have been allowed to invest in the Mexican mining sector without limitations and Canada has led the way. With a total of 173 mining enterprises working in Mexico in 2015, the country accounts for 65 percent of foreign investment in the sector, according to the Mexican Mining Chamber (CAMIMEX), helping to make Mexico Canada’s third-largest trading partner. Mexico has stressed that protection of the energy and automotive sectors will be the priority during the talks, but it can ill afford to accept any deal that will jeopardize the investment flowing into its mining industry from Canada.
The Trump Effect
Although the Trump administration is less than a year old, the positive effect on metal prices that many predicted is already taking shape. Copper, a key component in construction and public infrastructure projects, surged to US$6,569/lb on Wednesday, a 32-month high and 18 percent higher than its price at the start of the year. Zinc, another vital commodity thanks to its function as a galvanizer in steel production, climbed above US$3,000/t – its highest price since 2007 – and aluminum reached US$2,069/t, its highest point since 2014.
Precious metal prices have also responded well, suggesting investors continue to see gold and silver as safehavens from political and economic uncertainty. Since tumbling 13 percent in the build up to – and immediate aftermath of – the election, gold has steadily recovered during 2017 and reached US$1,289/oz in August, its highest point since October 2016. Silver has been slightly slower to bounce back, but still finished 1H17 up 4.5 percent.
Mexico has stated its desire to wrap up the negotiations by February 2018, to avoid any clash with presidential elections scheduled for the summer.
Sources: Financial Times, Mining.com, Nasdaq, Reuters