July ‘23 metals roundup: Bases down 6 in a row, Bulks flat

Commodity prices in July

The secular or long-term prognosis for industrial metals is still bright, but while the dollar is high, China is yet to stimulate and the monetary tightening cycle takes the world closer to recession, there’s still more cyclical pain to come before the business cycle can reset and begin again.

First, a quick update on the RBA’s commodity index, which tracks rural and non-rural commodities alike.

For July, the Index was down 3.1% month on month, across all hard and soft commodities tracked.

Its 30% off its April 2022 peak 👇👇👇

Industrial metal prices in July

Against this overall 30% commodity price backdrop, here are the NLC industrial metal rate of change price charts for July 2023.

1 Base metals

The month-on-month rate of change in base metals prices continued to decelerate for a 6th month in July, at a faster pace than in June 👇👇👇

NextLevelCorporate research, RBA

After building a decent head of steam in July, this is what’s transpired in the base metals complex since August 1:

  • Doctor Copper has flagged, dropping 3.1% as China stimulus bulls prematurely front ran the rumoured bull market, but perhaps a few too many ran the other way after analysing weak ‘stimulus’ comments out of China.

  • Nickel spot prices have fallen by 6.2%, ouch.

  • Tin has fallen 3.3%.

  • Zinc has fallen 3%.

  • Aluminium has fallen 2.1%.

2 Bulk minerals

The scintilla of a comeback staged by bulks in June was short-lived.

There was only a razor thin 0.3% increase in the month-on-month rate of growth, in July.

Still nothing on the horizon to dent the hefty declines in February, March, April and May 👇👇👇 as coking coal and iron ore producers wait for the Politburo to jam its elbow on the real estate/construction stimulus button. And they might be waiting a while.

NextLevelCorporate research, RBA

The next 12 months

Nothing much has changed from last month, and if the current trend is to reverse and break to the upside, we will need to see a few different vaccines being injected:

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

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

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

Still no trend reversal in any of those that I can see.

Now what?

Here’s what:

  1. Difficulties in raising money for many (but not all) miners 🤕 continues with more colleagues in the Junior mining space voicing the difficulties they’re facing garnering support from brokers for anything other than a narrow complex of lithium and battery mineral stonks.

  2. Race intensifies to opportunistically acquire copper and nickel while prices are low and notably, we’ve seen BHP and Wyloo duking it out over Nickel assets 💪💪 and we’re also seeing more M&A in the L word.

  3. Thermal coal and oil still have a big role to play given the uncoordinated and still largely unfunded approach to the green transition 😵 and oil firming on OPEC cuts.

  4. Moves in Chinese BEV (battery electrical vehicle) subsidies have fuelling price rises in lithium, as expected, 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, with a few pops here and there as central banks continue to buy and the market reassesses the terminal real rate of interest 💉

  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 💉 with Russia refusing to extend the Black Sea Grain Initiative, with more volatility in wheat and grain now likely.

Before I go, you might be surprised to hear that the LME Lithium Hydroxide CIF spot price is currently US$37,633/t, down 14% since 31 July and a whopping 22% since July 6.

See you in August.

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