June ‘23 metals roundup, Bases down 5 in a row, Bulks pop

Commodity prices in June

The secular or long-term prognosis for industrial metals is bright.

But before we get there, there’s more cyclical pain to come.

Higher interest rates (making growth capital more unattractive and the USD stronger) and declining growth in China (our biggest customer) have caused our debt fuelled expansion to move into contraction.

That will change, but not yet.

The decline in the RBA’s commodity index, which tracks rural and non-rural commodities alike, illustrates this cyclicality.

Industrial metal prices in June

Against the overall commodity price backdrop, here are the NLC industrial metal rate of change price charts, for June 2023.

  • Base metals

The month-on-month rate of change in base metals prices continued to decelerate for a 5th month in June, albeit at a lower rate of change 👇👇👇

  • Bulk minerals

Bulks staged a scintilla of a comeback, but almost nothing to dent the past 4 months of hefty declines with April and May printing negative growth rates of 11% and 13% respectively 👇👇👇

Metals cumulative rate of change since July 2022

In the last 12 months:

  • Bulk minerals have declined by a cumulative (and whopping) 33% 😵

  • Base metals have declined by a cumulative 14% 🥱

The next 12 months

For the current trend to reverse and break to the upside, we will need to see a few different vaccines:

  1. China to start building again, if policy allows for ‘construction’ friendly monetary stimulus 💉

  2. Supply chains to heal 💉

  3. Weakness in the USD to make commodities more affordable 🤑

Despite LME (London Metals Exchange) Nickel being up around 5% and Tin 8% (following declines in June), all other base metals have continued to trend lower since the beginning of July. No trend reversal that I can see, just yet.

Now what?

Here’s what:

  1. Difficulties in raising money for many miners 🤕

  2. Race intensifies to opportunistically acquire copper and nickel while prices are low 🤑

  3. Thermal coal is down but not out, given the uncoordinated and still largely unfunded approach to the green transition 😵

  4. Moves in Chinese BEV (battery electrical vehicle) subsidies may fuel more price rises in lithium, however nothing of a stimulus variety that would suggest steel mills will pay more for iron ore and coking coal 💉

  5. De-risking of new projects in terms of capital cost, process performance risk and credit wrapping now more important than before, along with strong green/ESG credentials 💉

  6. Gold still consolidating waiting for the tightening cycle to be over 💉

  7. Refi/restructure, M&A and other corporate events are likely for miners that cannot hang on 🤕

  8. Russia-Ukraine and geo-political reshoring may continue to cast a long shadow over availability and pricing of essential commodities 💉

See you in July.

Mike

Image: Leonid Altman

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