TL; DR 🕐

In September, bulk mineral prices (iron ore and coal) continued to decelerate at a fast pace of 8%, month on month (MoM)—the same as August.
In contrast, prices accelerated in August and September 2022 and 2023. So what we’re dealing with is structural not cyclical.
China stimulus appears to have prompted base metals to accelerate, but so far, it’s a false dawn. It’s non-cash stimulus and it won’t push the needle as I’ve previously written.
Furthermore, interest rates in the U.S. will remain higher for longer (with more rate cuts being priced out of markets following Fed guidance, a very strong September Jobs Report of 254,000 adds) and a still strong USD—as I have been consistently predicting, and recently underscored in our spring client newsletter.
It looks like the market has got off to another false start, partially because mainstream commentators, economists and other interested parties have been trying to ‘will’ markets up.
As I noted in our June, July and August Metals Roundups, a bearish head and shoulders reversal pattern materialised on the RBA’s monthly index of commodity prices chart and completed in August—with prices bearishly breaking down below the neckline, signalling a major reversal from bullish to bearish.
And that trend continued in September. And while interest rate cuts in the U.S. did come, they have not as yet been enough to neutralise the bearish chart pattern, cheapen the cost of capital, weaken the USD, juice up emerging market economies, and light a fire under industrial minerals. That, and we’re still waiting for Xi to add ‘real’ cash-based stimulus, although I’m not holding my breath.
Like I concluded last month, for there to be real positive price action and a reversal from bearish to bullish, we would need to see: (a) significant weakness in the USD (not there yet); as well as (b) the return of material demand from China (not there yet), presumably after broad-based stimulus in China (the jury’s still out) as well as a return of consumption (same jury, same caveat). They continue to be your lead indicators.

1. Base Metals 🔗🏮🔌

Base metal prices accelerated in September, with a modest 2.9% rate of change since August, following three months of price deceleration 👇

Expectations of China stimulus being the panacea has been the sole driver of this acceleration—and as predicted those expectations were overdone and premature.

And while LME cash delivery price action indicates an 8.5% increase in copper cash prices over the month of September, there has been some weakness in the past few days due to stimulus expectations being overcooked.

Aluminium, zinc and even nickel were also up in September, but the same caveat applies.

So, for September, bases and uranium were the bright spots, as were gold and silver, but almost everything else in the commodities complex was down.

2 Bulk minerals - inch by inch, still no help from USD 🧱👷‍♀️🌉

In September, bulk minerals (mainly iron ore with some coal) witnessed another big month on month price deceleration, with price declines accelerating at 8%. In other words, spot prices are still falling at their fastest pace, since March and there’s been no let up.

There’s still no reversal of the now 29-month downtrend that started in April 2022, one month after the first U.S. interest rate hike 👇

We’re still very much in the red with bulk mineral miners continuing to announce asset sales and other corporate bandages to mitigate this period of low prices.

Iron ore prices popped at the end of the month, but there’s nothing to suggest this will be sustained until we see the extent of Xi’s resolve to add broad-based stimulus, preferably cash and real liquidity—tic, toc.

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

The July 6, 2023, price high for LME Lithium Hydroxide CIF was US$46,046. At the end of September, it printed US$10,010/t, however today it is sitting at US$9,780/t.

That’s an annual decline of 79%!

The price deceleration continues and while it has slowed, it’s still there, nonetheless. The question now is whether technological advances and product substitution will occur before ‘EV/battery metal’ prices can recover.

Although not included in the data, uranium spot was US$81.75/t at the end of September—23% below its peak in January, but Constellation Energy’s agreement to reopen Three Mile Island for Microsoft, in my opinion represents the inflexion point.

4. Key question from the September 2024 data ✅

Is President Xi’s stimulus enough to reverse the bearish head and shoulders pattern that is continuing to bearishly plunge below the neckline?

And as a refresher, I pointed out in the June Metals roundup that a massive head and shoulders commodity price reversal formation (i.e., bullish to bearish) had materialised and was about to complete. Here is the chart I showed you in June.

And here is the September chart, showing continuation of the break below the neckline in September, after the right shoulder completed in August.

For further detail about the prior head and shoulder formation that completed in 2013, see my Aug ‘24 Metals Roundup.

But for the moment, let’s see what October brings and how short- or long-lived China stimulus might be. It’s a coin toss.

Heads is a lower dollar and more Xi stimulus, and it swerves to the right—tails is only some or none of that happens and it grinds lower, into shit creek territory.

But in terms of a lower USD, we will be waiting a while longer. Following the Fed’s recent 50 basis point rate cut, and recent Fed guidance which reveals that just as Philly Fed Chief Patrick Harker said after the meeting—rate cut step downs will be smaller than first anticipated, and methodical, reacting to incoming data.

And the hawkish point was underscored last week with the surprise 254,000 Job starts in the U.S., way above expectations which now means the next rate cut should be 25 basis points as opposed to 50, and there may be fewer of them.

News flash, the U.S. is not going into recession any time soon, if at all.

So, in the midst of new calls for a ‘no landing’ in the U.S.—slower and shallower than anticipated rate cuts, a continuing strong USD, and a lack of broad-based cash stimulus in China— the recent selective acceleration in industrial mineral prices won’t be sustained.

Looks like the market got it wrong, again. But don’t get me wrong, it is getting closer and will be here one day.

And in any event, gold and silver (monetary debasement metals) and uranium prices should do well, as will traditional energy commodities due to more than a decade of populist under-investment, and ongoing hostilities in the middle east.

And for those crying about gold miners being undervalued - central banks don’t buy gold miners.

5. Final thoughts

It feels like the recent pop in some commodities (other than for uranium) was the chirping of fake birds in a false dawn. For there to be real and sustained price commodity price acceleration across the entire commodities complex, and a reversal from bearish to bullish, we would need to see: (a) significant weakness in the USD (not there yet); as well as (b) the return of material demand from China (not there yet), presumably after meaningful broad-based (cash) stimulus in China (jury’s out on that) as well as a return of domestic consumption (same jury, same caveat). They will be your lead indicators.

We may still be at the opening innings of this shift—a sort of revving of the engines (er, motors….) with a few false starts before we really get started—like fake stimulus and EU member state tariffs on China EV sales to the EU, and similar inflationary and geo-political challenges.

So, until we see the above confirmations, position your corporate development strategy accordingly and feel free to reach out if you’d like to chat about this over ☕ and 🥐

See you in the market.

Mike

Metals roundup Sep’24: China's false dawn, prices continue downtrend