TL; DR 🕐

• In October base metal prices increased at double the pace of September, and bulk mineral prices staged a massive reversal from an 8% month on month deceleration, to a 12% price acceleration in October.

• China stimulus (or the perception of it being sufficient) appears to be responsible.

• As I’ve been noting since June 2024, a bearish head and shoulders reversal pattern materialised on the RBA’s monthly index of commodity prices chart and completed in August—with prices breaking below the neckline and signalling a major reversal from bullish to bearish.

• In October, there was an ever so slight uptick in that chart. That said, LME base metal prices have tanked in November so far.

• We will need to see November and December commodity price index prints to assess whether China stimulus (or its perception) is enough to neutralise the bearish chart pattern, cheapen the cost of capital, weaken the USD (good luck now Trump 2.0 is on the horizon) juice up emerging market economies, and light a fire under industrial minerals.

• 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, although the market seems to believe the recent narrative) as well as a return of consumption (same jury, same caveat).

• We’re not there yet—and now let’s add in the effects on trade flows, the cost of capital and the USD of Trump 2.0.

• On the face of it? Negative for commodities. Add to that his promise to roll back AUKUS and parts of Biden’s Inflation Reduction Act (IRA) resulting in lower demand for bulks, copper, other bases and green minerals, and his love of blunt instrument tariffs—which he will pair with reshoring manufacturing and ‘made in America’ tax breaks, as he escalates his 7-year-old trade war on the world—but mainly China.

• At the top of his new playbook will be protecting the USD ‘dollar standard’, probably by removing sanctions and replacing them with higher and/or new tariffs. And while he says they are not inflationary, that is incorrect.

• There is a real risk that Trump’s dollar standard focus will unseat any China stimmy, unless it’s truly massive.

• As a result, Aussie export commodities are in for a few volatile years—so, if you’re about to develop a project to deliver into yesterday’s demand/supply curves (bulks, bases, precious metals, battery/magnet minerals, energy minerals, ag, food, live produce) you may want to revisit and potentially recalibrate your investment thesis, rationale and timing.

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

1. Base Metals 🔗🏮🔌

Base metal prices accelerated in October, at twice the rate of September’s moderate acceleration.

This is positive and marks month 2 of a price rebound. Could this be it? Could China stimulus be sufficient and/or sustainable enough to launch bases into the next super cycle? 👇

I’m not so sure. LME cash delivery Copper and Nickel prices have cratered since 1 October and the Trump effect may be negative, not positive for bases. That said, Aluminium has broadly held up.

Let’s see how prices behave in November as corporations and markets start to factor in Trump 2.0 policies (and a volatile regime change).

It feels a bit negative to me.

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

In October, the price index accelerated by 150%!

Bulk minerals (mainly iron ore with some coal) witnessed a big month on month price acceleration, driven by iron ore and coking coal sales to China as the stimulus narrative gathered pace.

One month is just one month, so let’s see if this finally marks a reversal of the now 30-month downtrend that started in April 2022—a month after the first U.S. interest rate hike 👇

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

The July 6, 2023, price high for LME Lithium Hydroxide CIF was US$46,046. Today, it is sitting at US$8,666/t.

That’s an annual decline of 81%!

The price deceleration continues. The question still remains whether technological advances (existing and new chemistries) and product substitution will occur before ‘EV/battery metal’ prices can recover.

Trump is a big supporter of Musk as we know, but he is also a very big supporter of gasoline vehicles!

Although not included in the data, uranium spot was US$78/t—still well below its peak in January, with Trump’s support for natural gas to fuel data centres (over nuclear) more likely but given the volatility in policy during Trump 1.0 we need to wait and see.

4. Key question ✅

Is President Xi’s stimulus enough to reverse the bearish head and shoulders pattern, albeit it did pop a little in October? Even if it does, will Trump 2.0 undo the stimulus?

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 November brings and whether perception of China stimulus wins out over perception of Trump 2.0 policies and Biden policy rollbacks. Heads and it’s a lower dollar and more Xi stimulus, and it swerves to the right—this kind of happened in October. Or tails, a much higher protectionist USD under Trump 2.0 and it grinds lower into the New year, into shit creek territory.

And in terms of those hoping for massive rate cuts and a lower USD, you might be waiting a while longer.

Here’s what I said in the September Metals Roundup:

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.

And that’s what happened. Last week the Fed cut by a nothing burger 25 basis points.

It still feels to me like the recent pop in some commodity prices in October has been the chirping of fake birds in a false dawn—perception.

But for there to be real and sustained price commodity price acceleration across the entire commodities complex, and a reversal from bearish to bullish, we will 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, although the market seems to believe the recent narrative) as well as a return of consumption (same jury, same caveat).

They continue to be your lead indicators, and it will be interesting to see how these variables are affected by Trump 2.0 policies/Biden policy rollbacks.

5. Final thoughts

Last month, it felt like we were in a false dawn for commodities—too early to be there, i.e., a sort of revving of engines (er, motors….) with 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 halting the next up-cycle.

That’s proven to be the case for various reasons—and it’s been accelerated with protectionist/inflationary expectations of Trump 2.0, more tariffs, a probable IRA rollback, a focus on bringing down gasoline costs by encouraging big oil to drill, ‘made in America’ tax cuts and other mooted changes, as well as the ‘dollar standard’ protected at all costs—a key plank of the Trump 2.0 playbook.

It may well be that the focus on dollar supremacy, which I like to call Dollar Vader, will undo China stimulus, unless it is profoundly massive. As a result, the next commodities up-cycle seems to be further out and Aussie export commodities as a whole are in for a few volatile years ahead.

By December, we should have some early confirmation of whether we will enter a bearish or bullish price regime—it’s just too early to tell—and while we’re waiting for that confirmation, if you’re going to be exporting agricultural, food or natural resources/mineral commodities to China and surrounds, you may want to keep some optionality in your corporate development strategy.

If you’re about to develop a project to deliver into yesterday’s demand/supply curve, you may want to review and potentially recalibrate your investment thesis and rationale.

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

See you in the market.

Mike