Metals roundup May ’24: Base effects hide price realities
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TL;DR 🕐
In May, the RBA’s commodities Price Index increased by a healthy 1.2% in SDR terms, more than reversing April’s decrease and significantly above the March decrease.
And over the past year, the index decreased by 4.2% in SDR terms (less than half the decrease in the month before).
However, this trend improvement seems a lot better than it really was, due to base effects, which is to say that bulk mineral and base metal prices decelerated by a whopping 13% and 5% respectively 12 months ago to significantly lower levels than today, making the annual price growth trend look better than it really was.
The reality is quite different. In fact, copper recently lost of all its May price gains, as oversupply continued in China. The Yangshan copper premium remained at or below zero. And while Aluminium prices increased by 7% in May, half of those gains have already been lost in June.
Lithium and cobalt prices were down with moly up marginally in May, and the battery metal complex continues to be challenged due to Chinese cost advantage and over capacity.
On balance, May metal price soundings were quite bearish, and we will likely see more weakness this month.
Metals Roundup will be back in July, but in the meantime feel free to access the monthly rate of change price charts and detail below.
1. Base Metals 🔗🏮🔌
While copper prices in May accelerated at a decent monthly clip of 5%, the rate of acceleration slowed by a massive 50% 👇
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Copper in China continued to be in oversupply, with the Yangshan copper premium hugging the zero plimsoll.
Since 19 May, copper prices have been in retreat with all of the blowout gains in May, all but wiped out so far, in June 👇
More recently, news out of China indicates that while spot premiums have risen, they are still being suppressed by high inventory and warrant levels.
It seems April’s wild month on month price acceleration in bases, was the outlier.
We’ll check back in early July.
2 Bulk minerals - inch by foot 🧱👷♀️🌉
May printed the first price acceleration since December last year. Woohoo!
Perhaps May marks the reversal of the 24-month downtrend in prices that started in April 2022, one month after the first U.S. interest rate hike 👇
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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$13,800 and 70% down from July last year.
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.
Today, uranium is fetching US$88/lb, still quite a pullback from the US$106/lb highs.
4. Key takeaways from May 2024 ✅✅✅
Base metal prices seem to have broken their 24-month price deceleration trend for a third month, although the rate of price acceleration decreased by 50%. China copper stockpiles are still increasing with spot premiums subdued.
Take care when reading the RBA’s comments about the annual rate of change in the overall commodities price index. The annual trend appears better than it really was because of the base effects explained above.
The BHP/Anglo takeover battle seems to have fizzled for the minute.
The month of May might have marked the uptrend for bulk minerals, but we will need to see another couple of months to confirm that.
Lithium prices continue to be driven by oversupply expectations in light of China’s EV cost advantage (squeezing refiner and other margins) and uranium prices are still subdued.
The metals outlook is bearish with more weakness likely in the short term, but further out things look bright.
Feel free to reach out if you’d like to chat about this over ☕ and 🥐
Metals Roundup will return in the first week of July.
See you in the market.
Mike
Next Level Corporate Advisory is a leading Australian corporate development advisor focused on strategic M&A, corporate finance, investment and exit solutions. With a dealmaking track record spanning three decades, we help family-owned, private, and publicly traded companies develop, grow, and realise their value.
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