Strong (U.S.) dollar, weak China, tariff spectre hobbles bulks in January 2025 🕐

Looking back over the past 12 months, the second derivative of the RBA’s Commodities Price Index, i.e., the month-on-month rate of change in prices (which is what the nextlevelcorporate rate of change charts measure) tells a story of minerals demand collapse, not supply shortfall.
Bulk mineral prices have slowed/decelerated for 9 of the 12 months—a massive reversal on price acceleration in 8 of the previous 12 months. Bulk minerals are clearly in retreat.
Base metal prices have slowed for 6 of the past 12 months, however those 6 months have occurred in the past 8 months, i.e., 75% of the price change in the past 8 months has been deceleration, indicating a 4-month lag behind bulks, and some different drivers.
Actual LME aluminium increased rapidly up until January 22, and then fell back for a 2.4% increase, copper and nickel both mooned between 6% and 7% before losing more than half of their gains in the last week of January, printing increases of between 2% and 3%.

Why?

Social construction demand from China has collapsed, and China still controls most green mineral (lithium and rare earths) processing, refining and as a consequence is able to manipulate prices and squeeze out potential new supply
The supply of green mineral feedstocks to China has not been banned by producing nations, which is to say that out-of-China supply chains are flawed—they still sell to China Inc! Hello?
The so-called green transition (which is totally dependent on metals and hydrocarbons to power it) is unfunded and hopelessly uncoordinated, and while the ALP is in power down under, we will miss out on the future-facing benefits of nuclear-powered grids and robots that don’t need to sleep and eat.
The USD is far too strong, making USD denominated metal and minerals expensive for many importing nations. And in early February, one AUD was only buying 0.605 USDs, close to a historical low.
The cost of capital (driven by interest rates and oversized gains on equities, in turn creating a high market risk premium) is still way too high for financiers in many of the niche/non-terminal metal sectors.
Europe remains in decline, albeit a weaker euro against the USD makes German exports more attractive. The unavailability of consistent and fairly priced energy and a lack of product demand due to U.S. reshoring and manufacturing incentives under Trump—all continue to damage any Euro area recovery.
Trump’s growing “USS Alonism” policies (readers of our newsletter will know all about this) has weighed on pricing.
Expectations of more volatility to come with Trump tariffs and his focus on a stronger U.S. dollar standard, despite the market betting otherwise.

No change to the nextlevelcorporate thesis thus far in 2025

For there to be real positive price action and a reversal from bearish to bullish, we 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 (not even close) as well as a return of consumption (same jury, same caveat) and not just from unhinged Government spending (aka wallpapered welfare spending that’s occurring in most economies and masking the real pain on main street).

Add to this Xi’s ability to kill a metals market by directing one of his SOEs to price war on the west—and Trump’s blunt instrument policies likely to soften demand for incremental inputs, and his promise to strengthen the USD ‘dollar standard’—and you get a truck full of industrial mineral bears.
And yet miners and their brokers, hankering for fees in a pretty ugly ECM space (albeit, with some green shoots on RBA rate cut expectations, rightly or wrongly) continue to upsell the “commodities super cycle” and copper mine lead times in an attempt justify why companies and individuals should invest in new capacity.
Like that’s only 1/3rd of the story—with the rest of it already explained above.

Your charts 📈

Base Metals 🔗🏮🔌

Downtrend intact. Freeport and others starting to look like value.

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

It’s a tale of two completely different cities. The demand and supply curves are normalising. But at the same time Trump’s tariffs are going to be bad for Aussie steel input suppliers (iron ore and met coal).

Bigger miners buying the dip and hoovering targets that cannot hang on any longer is not a bad #corpdev strategy for the buyers, but only a few big players can do this.

And investing in those bigger names now before they can enjoy the EVA from this bottom feeding? No thanks.

Energy minerals (ex-coal and oil) ⚗🧲☢

The July 6, 2023, price high for LME Lithium Hydroxide CIF was US$46,046. On the last day of January, it was US$9,470, flat from the previous month and still representing a decline of 79% from its July 2023 peak. Ouch.

Reasons? China, tariffs, U.S. reshoring, lack of overall demand beyond China.

Although not included in the index, uranium spot is currently US$69-70/t—well down from last month and still well below its peak in January, with and still no change to the ALP’s vacuous stance on uranium.

Commodity price index head and shoulders

With metals down 12% over the past 12-month period, the only thing holding up the right elbow 👆 is strength in agricultural commodity prices and only marginal support from some base metals.

Dollar Vader is still at work and whereas food is a necessity, industrial metals and minerals are not—and the green transition narrative is way too woke for Trump.

Trump could be the reason for us to see this all head south—just like it did during Trump1.0, which you can see in the ‘low and choppy’ tariff reintroduction period between 2017-2021 👆

Will we see the right shoulder of the RBA Index collapse into the 50s?

Maybe, but if you’re looking for a leading indicator on this, perhaps think about how confident you are with our government’s ability to play the meat in the U.S./Sino trade war sandwich.

And on that front, Australia’s track record hasn’t been that great.

Rates, debts and deficits, still high—USD still strong. China and Euro bloc still weak. Steel and aluminium tariff double-down liftoff, and there’s way more volatility to come.

Volatility ahead for industrial metals

I’ll say it again, Aussie export commodities are in for a few volatile years—so, you may want to revisit and potentially recalibrate your investment thesis and corporate development strategy if you’ve built your strategy for yesterday’s macro and geopolitical drivers.

Keep an eye on the dollar as Trump guns USS Alone’s engines (after bludgeoning Canada and Mexico)—and screams ramming speed. Make sure your projects are profoundly robust. Only precious metals glimmer right now.

See you in the market.

Mike

Metals roundup Jan’ 25: New year, same dollar, bears gain momentum