Metals Roundup Sep-23: Bearish bases, bullish bulks

Commodity prices in September

The secular or long-term prognosis for industrial metals is still good, yet there are still many macro factors working against higher prices.

A strong USD for longer as short yields remain high to fight inflation and long yields rise in anticipation of trillions in new Treasury issuance to fund the U.S. deficit. Crumbling demand from China with significant property market stress and no broad-based stimulus. European recession. There’s a few!

In the meantime, here’s an update on the RBA’s commodity index, which tracks rural and non-rural commodities alike 👇👇👇

For September, the Index was up 3.9% in SDR terms, across all hard and soft commodities tracked.

Yup, a small reversal that’s likely to be short-lived due to the factors discussed above.

Overall, commodity prices (on an indexed basis) have still lost pretty much all of their Russia/Ukraine premium, even though bulk commodities rallied with the bulls in September.

Industrial metal prices in September 🏭

Below are NLC’s industrial metal rate of change price charts, for September 2023.

1 Base metals - our first acceleration in 8 months!

Still a bear’s picnic for bases in September, with the month-on-month rate of change accelerating for the first time in 8 months, but at 2.4% it was nothing to materially move the dial 👇👇👇

NextLevelCorporate research, RBA

Last month I wrote that the August print might have been a signal for trend reversal, potentially in September or October. Well, we got a reversal, but based on what we’re seeing and hearing in the market it’s unlikely to be sustainable.

As usual, we’ll have to wait and see.

2 Bulk minerals

Whereas September brought a rally in bulk minerals (coal and iron ore) with a respectable 12% acceleration in the Bulks index.

We would need to see at least another two to three months like this if the Bulks are to reverse their hefty declines in February, March, April and May ‘23, but nonetheless this may be confirmation of a slight pickup.

But what we really need to see is a deluge of construction related stimulus in China to really light up these bulks 👇👇👇

NextLevelCorporate research, RBA

Industrial metal changes since last month 🤔

Some rallying in bulks, but otherwise not much. And like before, what we ideally need to see for the industrial mineral commodities complex to recover, is:

  1. China to start building again 💉

  2. Critical hard and soft commodity supply chains to heal/regionalise 💉

  3. Weakness in the USD to make commodities more affordable 🤑 but there’s not much chance of that in the short-term as interest rates and the price of oil remain high 🛢🛢🛢

  4. Germany to come out of recession 💉

  5. Country Garden (one of the China’s top 10 developers) being able to refinance its bonds.

  6. The U.S. Treasury being able to refinance trillions in borrowings without breaking the Treasuries market, which is getting more difficult by the day, as the 10 Year Treasury Note hits a blistering 4.72% (as I write) on its way to somewhere over 5% in the weeks/months ahead.

And now for a touch of white powder 😲

At the end of August, the LME Lithium Hydroxide CIF spot price was down 35% from its July 6 high of US$46,046.

But today, it’s down 47% with the one-month contract at US$24,500.

Source: London Metals Exchange

And after a month of bearish bases and bullish bulks, you can also buy a Chinese BEV in Europe for a 30% to 40% discount to its local alternatives.

Why? China demand for BEVs has collapsed. Germany is in recession and receptive. So, China can dump relatively cheaper units in the EU without government interference. China can therefore export disinflation while pressing its competitive advantage in BEVs which is built on cost leadership.

Regardless of those bullish bulks and bearish bases and powders, I’ll look for you on those higher for longer energy thermals.

Mike

Image: Leonid Altman

Next Level Corporate Advisory is a leading Australian M&A, capital and corporate development advisor with a dealmaking track record spanning three decades. We help family, private and publicly owned companies build and realise value in their businesses, assets and investments.

All written content is copyright NextLevelCorporate.

Michael Ganon#strategy, commodities, #corporatefinance, #markets, #equities, #stocks, #bonds, #finance, #economics, #business, #ethereum, #bitcoin, #inflation, #gold, #silver, #qeinfinity, #economy, #interestrates, #trade, #transformation, #ceos, #directors, #founders, #cfos, #currencies, #construction, #mining, #renewables, #technology, #leadership, #india, #china, #australia, #perthbusiness, #education, #research, #businessowners, #future, #brexit, #nextlevelcorporate, #mikeganon, #community, #covid, #populism, #crypto, #successionplanning, #familyoffices