South32 in the spotlight as U.S. tariff talks heat up
The Australian aluminium industry stands at a crossroads as the U.S. flirts with sweeping tariffs on aluminium imports, putting South32 (ASX: S32) in the spotlight.
Is this a moment for Australia to prove its resilience, or are we headed into a looming disaster for its prized producer?
Australia is the world's largest alumina exporter and the seventh-largest aluminium producer, raking in $15 billion in export earnings in 2023 and supporting more than 60,000 families.
Yet, despite this global footprint, only 10% of its aluminium exports go to the U.S., making up just 2.5% of America's total imports.
So why is the U.S. targeting Aussie aluminium? Peter Navarro, a key Trump trade adviser, claims it's "killing the U.S. market".
But let's be real-Australia's small slice of the pie isn't the root of America's aluminium woes. Analysts argue domestic inefficiencies are the real culprit, not competition from downunder.
This puts South32 in a crucial position. As one of Australia's largest aluminium producers, the proposed tariffs present both challenges and opportunities.
While losing access to the U.S. market would sting, South32's diverse operations across multiple regions and commodities could help offset the blow.
Looking at the chart, South32 is holding strong. Twice finding support around $2.70, the stock now trades above $3.30. A breakout past $3.60 could see it test $4.00, while a slip below $3.30 might bring $2.70 back into play.
Tariffs or not, Australia's aluminium sector is no stranger to headwinds. The real question is-can it pivot and adapt in time? South32's ability to navigate shifting trade dynamics might just hold the key.
What are the best and worst-performing sectors this week?
The best-performing sectors include Industrials, up more than 2%, followed by Consumer Discretionary and Financials, both up more than 1%.
The worst-performing sectors include Healthcare, down more than 3%, followed by Information Technology, down more than one and a half per cent and Utilities, down more than 1%.
The best-performing stocks in the ASX top 100 include Computershare Ltd, up more than 20%, followed by Light and Wonder Inc, up more than 8% and ASX Limited, up more than 6%.
The worst-performing stocks include Insurance Australia Group, down more than 11%, followed by CAR Group, down more than 7% and AGL Energy, down more than 6%.
What's next for the Australian stock market?
The All-Ordinaries Index surged to a record high of 8839 points this week, fuelled by strong buyer momentum.
However, the rally was met with some selling pressure on Thursday, with the index ultimately closing just shy of half a per cent higher.
This move came as no surprise, given the solid buying support from the previous week, especially in the face of a wave of uncertain market news coming out of the United States.
So, what's next? Historically, the All-Ordinaries Index has delivered an annual return of around 9%.
What's intriguing is that we're already a third of the way there, and the year is barely two months old. The speed of this market rally is impressive, but more importantly, it's looking sustainable. Why?
Let's examine the past three major rallies. Since November 2023, the All-Ordinaries has posted two solid moves up which garnered double-digit returns-averaging around 15%.
The trajectory of the current rise, from the low on the 20th of December, mirrors those previous moves, indicating a healthy pace.
What does this mean moving forward? The market isn't overstretched yet, which suggests we could see a strong finish to the reporting season in March before any major pullbacks.
So, if you think you've missed out on the opportunities of 2025 so far-think again. The tide is rising, and there are opportunities across almost every sector right now.
The Energy sector, in particular, look like it's ready to break out after being underappreciated throughout much of 2024. Keep an eye on this one-it could be on the brink of a major upswing.
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