Metals roundup April ’24: Copper gets more than a pulse!

Image: Pixabay

TL;DR 🕐

  • In April, the commodities index decreased at a slower rate than in March (i.e., 1.5% versus 4,7%) in monthly average SDR terms.

  • Over the past year, the index decreased by 11.6% in SDR terms, led by lower thermal coal, iron ore, coking coal, LNG and lithium prices. In AUD terms, the index decreased by 11.1%.

  • Using spot prices for bulks, the index increased by 0.4% in SDR terms, to be 10.2% lower over the past year.

  • Base metals had a blow-out month in April with a price acceleration of over 10%. I’ve not seen a move that big since July 2022, and that was in the opposite direction!

  • April’s price acceleration in bases is the fastest acceleration in three years and might be what’s needed to confirm a long position. Aluminium was also up.

  • However, copper appears to be in oversupply with the Yangshan copper premium troughing to zero. Fabricators are not buying due to already high prices, and while there is some demand from renewables, fabricators are priced out and China stockpiles are building.

  • Lithium prices accelerated marginally, moly was flat, and cobalt was down. This complex is still challenging.

  • Oil and natural gas were both down.

  • The April winner was copper, but we need to see what happens in May as stockpiles climb.

  • Metals Roundup will be back in May with further analysis particularly in relation to copper., but in the meantime feel free to access the monthly charts and detail 👇👇👇

1. Base Metals 🔗🏮🔌

It’s only one month, but copper is looking more and more bullish as the days go by.

While I’d still like to see how the recent interest rate pause (and stronger for longer USD) will affect it, things are looking more lustrous for the red metal.

Manufacturing PMIs are strengthening but still not there yet. I have a close eye on China.

Base metals had a blowout month in April with a price acceleration of over 10%. We’ve not seen a move that big since July 2022, and that was in the opposite direction. It’s the biggest price acceleration in three years.

As I mentioned last month, LME Copper was up 9%. Copper and aluminium LME prices were up 12% and 9% respectively, over April.

This might spell an end to the 24-month secular price downtrend (i.e., 24 months following the start of U.S. interest rate hikes in March 2022) in copper prices.

And in April, BHP bid boldly where no Aussie has bid before, Anglo - and it’s all about copper.

But in saying that, copper appears to be in oversupply in China (the biggest demand market) with the Yangshan copper premium troughing to zero. Fabricators are not buying due to already high prices, and while there is some demand from renewables, stockpiles are building.

To see if we have a new uptrend, we’ll have to check back in early June.

In the meantime, here’s the blow out monthly rate of change chart for April 👇👇👇

Copyright, NextLevelCorporate Advisory

2 Bulk minerals - inch by foot 🧱👷‍♀️🌉

There was quite the improvement in the bulk minerals complex, in April.

Following the 13% month-on-month price deceleration in March, April printed a mere 1% deceleration.

Might this be the start of a reversal in the 24-month downtrend in prices that started in April 2022, one month after the first U.S. interest rate hike? 👇👇👇

Copyright, NextLevelCorporate Advisory

3. Energy minerals (ex-coal and oil) ⚗🧲☢

The July 6, 2023, price high for LME Lithium Hydroxide CIF was US$46,046.

Today, it remains at US$13,830, slightly up from last month’s closing price of US$13,150 which is a total of 70% down from July last year. Still down but not out.

Relative to the GFC-to-COVID years, the cost of capital is still high, the USD is still strong, and China peaked some time ago. These headwinds fly in the face of some recent sentiment or M&A-related bounces in some lithium stocks.

That aside, it’s going to take more time for the price deceleration trend to unwind.

The question now is whether technological advances and product substitution will occur before ‘EV/battery metal’ prices can reach their historical all-time-high.

Uranium was fetching US$91/lb at the end of April. This is still quite a pullback from US$106/lb.

At the end of April uranium stocks had started to recover, possibly as the negative supply announcements from Cigar Lake owner Cameco in February, as well as the world’s largest producer, Kazatomprom started to bake into the narrative.

Here in Australia, it’s still all narrative because while we can mine it, sort of, we can’t energise it.

4. Key takeaways from April 2024 ✅✅✅

Bases seem to have broken their 24-month price deceleration trend for a second month with the highest price acceleration in three years.

Keep an eye on the BHP/Anglo takeover battle. Keep an eye on China copper stockpiles. If they increase, it makes the BHP bid look better.

Bulks are still in a downtrend, although that has slowed materially.

Where to from here? Well, it’s likely that supply and demand factors to and from China, Russia and India hold the answer for bulks - but for all metals, we need to see if the 1 May FOMC decision (higher rates for longer) will have a cooling effect on industrial metals.

Also of note was the tiny uptick in U.S. unemployment to 3.9% and the lower job starts for April of 175,000, well below the 200,000 estimated. Might this be a corner turn? Too early to tell.

Outlier lithium prices are predominantly M&A driven whereas the great bulk of the sector is being driven by oversupply expectations in light of China’s EV cost advantage (squeezing refiner and other margins). The Azure transaction should be wrapped up shortly.

Uranium prices are a different kettle of fish and currently being influenced by spot versus contract, supply issues with CCJ and the Kazaks, the Sprott ‘buy-back’ mechanism, and the growing realisation that the only energy source that can solve for density, efficiency, zero emissions and the sheer increase needed to support compute, data storage and AI - is nuclear. Let’s get the hell on with it.

Feel free to reach out if you’d like to chat about all of the above over ☕ and 🥐

Metals Roundup will return in the first week of June.

In the meantime, my new mini-series, ‘Treasury is Fed, Fed is Treasury’ starts tomorrow morning at 10.00am.

Until then!

Mike

Next Level Corporate Advisory is a leading Australian corporate development advisor specialising in M&A, investment, financing and exit solutions. With a dealmaking track record spanning three decades, we help family, private and publicly owned entities develop and realise value in their businesses and investments.

All written content is copyright NextLevelCorporate.

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