Base Metal Rebound: Navigating the US-China Tariff Truce for Strategic Gains

The 90-day US-China tariff truce, effective May 14, 2025, has injected a cautious optimism into global markets, particularly for base metals. While the agreement temporarily reduces tariffs—lowering U.S. duties on Chinese goods from 145% to 30% and China’s retaliatory tariffs from 125% to 10%—its expiration in August 2025 looms large. For investors, this creates a unique opportunity to position in undervalued base metal stocks poised to rebound if the truce evolves into permanent tariff relief. However, the path forward is fraught with uncertainty, demanding a balanced strategy to capitalize on durable industrial demand while hedging against renewed trade tensions.

The Tariff Truce: A Bridge Over Troubled Waters?

The truce has already sparked a rally in base metal prices. Copper, a critical conductor in EVs and renewable infrastructure, rose 0.6% to $9,497.5 per ton on the London Metal Exchange, while nickel surged 2.1% to 126,280 yuan per ton in China. These gains reflect reduced fears of a global economic slowdown and revived trade flows. Yet, the agreement is a stopgap, not a solution. Analysts note unresolved structural issues, such as U.S. national security concerns over supply chains and China’s state-driven industrial policies, remain unaddressed.

Undervalued Opportunities in Base Metals

Amid this volatility, certain base metal stocks offer compelling entry points for investors willing to bet on a prolonged thaw in trade tensions:

1. Alcoa (AA): Aluminum’s Comeback Play

Alcoa, a vertically integrated aluminum producer, trades at 40% below its $42.50 Morningstar fair value estimate. Its cost advantage stems from low-cost bauxite mining and energy-efficient refining, critical for EV lightweighting. While U.S. tariffs on Canadian aluminum imports cost the company $90 million annually, the truce’s reduction in Chinese tariffs eases pressure on global supply chains.

A sustained Midwest aluminum premium above $0.30 per pound—a key offset to tariffs—could stabilize margins. However, risks persist: the catastrophic April power outage at its San Ciprián smelter in Spain could delay recovery, and a tariff renewal post-August would pressure earnings.

2. Lithium Argentina (LAR): Betting on EV Battery Demand

Lithium Argentina trades at 79% below its $10 fair value, offering exposure to EV lithium demand. Its Cauchari-Olaroz project, a joint venture with Ganfeng Lithium, targets 80,000 metric tons of annual lithium carbonate production by 2026. While China’s dominance in rare earths and lithium processing poses risks, the truce’s reduction of tariffs on Chinese imports could boost U.S. EV manufacturers’ demand for lithium.

3. Sociedad Química y Minera (SQM): The Lithium Giant

SQM, trading at 57% below its $80 fair value, controls Chile’s Salar de Atacama, the world’s highest-concentration lithium brine deposit. Its plans to expand Chilean lithium capacity to 300,000 metric tons annually by the next decade align with soaring EV demand. However, SQM’s valuation hinges on resolving geopolitical tensions with China, its largest export market.

The Risks: Tariff Renewal and Supply Chain Volatility

Despite the truce’s short-term gains, three risks demand caution:
1. Expiration of the 90-Day Window: If talks stall, tariffs could revert, destabilizing base metal prices.
2. Geopolitical Drag: U.S. concerns over China’s state subsidies and supply chain dominance may reignite trade disputes.
3. Commodity Price Cycles: Base metal prices remain tied to broader economic health. A recession could outweigh tariff relief benefits.

Strategic Positioning: Play the Long Game, Hedge the Risks

To capitalize on this opportunity while mitigating risks, investors should:
- Focus on Diversified Exposure: Pair plays in Alcoa and lithium stocks like LAR with inverse ETFs (e.g., TAPR) to hedge against tariff volatility.
- Prioritize Cost Advantage: Target companies with low-cost production (e.g., SQM’s Chilean brines) and vertical integration (e.g., Alcoa’s bauxite-to-aluminum chain).
- Monitor the Midwest Premium: A sustained $0.30/lb+ level signals aluminum’s tariff-resistant pricing power.

Conclusion: A Fragile Dawn for Base Metals

The tariff truce has lit a path to lower trade barriers, but the road to permanent tariff cuts is rocky. For investors, the current environment offers a rare chance to buy undervalued base metal stocks at a discount—provided they remain vigilant to geopolitical headwinds. Those willing to navigate this uncertainty with a hedged, long-term strategy stand to profit as EV adoption and infrastructure spending fuel demand. The clock is ticking until August; act decisively before the next storm.