Righto money miners. The China commodity theme will
continue in this episode. We've got an absolute RIP
snorter coming in from Japan and the theme of MMS being the
greatest mining contractor in Australia is something that will
never end, especially considering they got gear ready
to go to move dirt right now. Like there's like you think open
pit, you think MMS goes together?
You bloody need to know like a glove.
Don't This could be the last last in our brief series.
Endeavour to China for a little while, Maddie, but we'll be
back. Alright mate, we're as many
episodes as people in the country.
It's bloody, it's bloody great, but boys, I.
Think we could we could brand this one with an Indian flag?
Just about yes. Strong, strong pick.
Yeah, right. So today, money more as we have
Ian Roper from Asterisk Advisory, previously worked, but
he's CLSI Macquarie mate. He covers bulks, base metals,
new energy, materials and live from Tokyo, probably possibly
the greatest city in the world. Mate, welcome onto the show.
Cheers. Yeah, yeah, certainly the good
city, yeah. Just don't mind lifting up a bit
of sashimi while you're there mate, just to keep a bit of a
Japanese feel to it. Take out for you here.
Boys, you want to give a bit of an intro of what today's episode
will all be about? Yeah, let's let's RIP in.
So Maddie, as you know, we've been going on a bit of a, a
China venture, a bit of a commodities broader sort of
venture, given all the the stimulus chat that we've seen in
in recent weeks. And this is another one, Ian's
been recommended to us by an Aussie fund manager.
So thought we'd get in touch and get the over overview from a
commodity strategist and that is very much Ian's background.
So where I want to start the conversation, Ian, is the
stimulus, it's the, it's the elephant in the room, the one we
have to kind of talk about. And you told me when we were
chatting before the call that you'd, you'd had a bit of a, a
pick on China prior to the year starting.
And then there was a bit of sentiment and perhaps sentiment
changing in and around LME week last week or the week before.
So I'm keen to hear what you're kind of picking up, how the the
mood is on the back of the stimulus that we've seen in
China. Yeah.
So, so China's had a really tough year this year.
It started at the end of last year.
She made it very clear that it's unhappy local governments have
just been spending too much money, too heavily indebted.
So there was a big clamp down on local government debt spending
etcetera, LGF, ES, especially the off balance sheet lending
they were using to fund a lot of infrastructure.
So there's one key data series I look at, which is the newly
signed construction contracts quarterly data series that was
running down 5 trillion RMB, about 10% year on year in Q4
last year. And that was a very clear
indication that the infrastructure this year was was
just going to be down sharply. Yeah.
So cement demands been running down double digits all year,
steel demands down about 5%. You know, what I call the old
economy in China has really been struggling, but that's not the
whole picture for China. You know, backs in the 2000s, a
super cycle, it's a rising tide lifted all boats, right?
Whereas now China's really seeing a lot of divergent
because you've got the old economy, housing,
infrastructure, yes, very, very weak.
They've just been in decline for the last few years.
That's where things like like steel demand have suffered
especially, but also we've got the new economy direct, China's
massive investment in EVs, in renewable energy.
And that's where the base metal demand is.
And that's why you're seeing this divergent where steel
demand running down 5% this year, but aluminium consumption
is still growing 5%. Copper demand is going to be up
3 or 4%. So you've got a real kind of
split in China between old and new.
And that all comes back to to XI's version of of Chinese
modernisation as he calls it. She's new version of Chinese
modernisation, which is that she wants the Chinese to invest
heavily on the technology side and upgrading manufacturing,
going high end, leading the world in all the technologies,
EVs, etcetera. And you see they're doing a good
job on that, whereas the old economy, you know that that's
just something that they're not focused on so.
Ian, given given your role, speaking with plenty of
institutions out there, what what are the the traders in and
around Asia making of the stimulus?
So there's still a lot of scepticism about the stimulus.
So, yeah, China is now very different to what it used to be,
right? In the old days, Beijing would
say stimulus and everyone would jump and off to the races.
You know, 2000 and nine, 2016 markets moved very rapidly.
This time around, quite different now, I'd say the
Chinese peoples have been very depressed since COVID basically.
You've had a number of different angles there.
Not least she's the corruption clamped down, right, making life
more uncertain, especially for entrepreneurs and business
people, finance people. So that's kind of hit a lot of
investigative confidence within China, both on the manufacturing
side, investing side. For the last 20 years, people
have been used to wage growth. You know, jobs were plentiful.
You know, people were getting richer all the time.
That's really kind of come to an end with the downturn we've had
since 2020 and all the COVID restrictions.
And so that's where you've got a lot of people that are feeling,
you know, my house price is not going up anymore, wage incomes
growth not there anymore. And that's why consumers have
been miserable and not spending and therefore manufacturers have
been miserable and not investing in new manufacturing either.
So that's the kind of weakness we've been suffering from really
since since COVID. And Beijing's been trying to
cheer people up for the last couple of years.
And that's where it's been, you know, so different to previously
that the word stimulus has been too overused now that we've seen
numerous little stimuli, I suppose, over the over the last
couple of years. And they're always tweaking
housing restrictions and trying to loosen things at the margin.
And then it just falls flat. You know, it's not enough to get
things moving. So I've been very dismissive of
the stimulus headlines that we've seen through the year
until this latest one at the end of September.
And this really is a shift change.
To me, this is very clearly a strong change in direction where
Beijing's just said, look, growth is just too weak now.
Consumers are too miserable. They're not spending,
manufacturers are not investing. And we're really struggling to
hit the targets here. So yes, the green economy is
doing really well, but we still need the consumers to be
spending. We still need the manufacturers
to be investing and having a more optimistic outlook.
So you've really seen seen a big shift.
But at the same time, they're still constrained by she's kind
of reluctance to go too heavy on the leverage side of things.
So this is not like old fashioned stimulus about the
gloves are off, you know, just money and spend on anything.
So they're they're she's still determined not to do a bridges
to nowhere policy, right. They're not just going to build
infrastructure for infrastructure's sake.
It has to be show some kind of economic return still and the
housing market, that's the big issue.
So one fantastic step on the housing market since China
privatised the housing market in 1999.
You know, prior to that it was all communism.
It was all allocated housing. It's only been a private market
since 1999. They've actually built more than
one apartment for every urban family in 25 years, right?
That's ridiculous. You know, some of us live in 100
year old houses in the rest of the world.
China's literally built the entire urban housing stock in 25
years. So that's why the policy for the
last few years has been, Oh dear, look at the demographics.
We've built far too much already.
We'd better stop building it. We can't continue at this kind
of pace. So it's about better utilising
what they've got and not building so many new ones.
So that's why you've seen such a drop off in in housing in a new
new housing constructions are running at about 1/3 of the peak
levels in the late twenty 10s. So that's again something that's
not going to come back, right. So they want to stimulate the
consumers. They want to get the
manufacturers on the entrepreneurs investing and
people feeling good. But she's still reluctant to let
the local governments spend more money recklessly to boost the
housing market and get developers building more
apartments. You know, those bits of the old
economy are still things that they're holding back there.
And that's where you're getting kind of this these mixed
conceptions and kind of lack of belief in stimulus where a lot
of people are still looking for the old fashioned stimulus
infrastructure and housing. It's just not happening.
Whereas the kind of this new stimulus is all about trying to
get confidence back. And personally, I think they'll
get there. They'll they'll be able to raise
the confidence. You will see consumers coming
out now spending more money. Hopefully we'll see a pick up in
investment levels domestically and then for metals that could
could well trigger a restocking cycle.
That would be the real upside for metals prices.
If you then get all of the manufacturers restocking, you
then get the traders restocking. You get a lot of belief and
excitement heading into Chinese New Year next year that, Oh
yeah, 2025 is going to be much better than 2024 and off to the
races we go. When when you say consumer, are
you referring to Chinese consumers or international
consumers? Oh, no, Chinese consumers, yeah.
So obviously one of the. Yeah, sorry.
So if that's the case, like how much of China is made up of the
the low income Chinese part of the population, that is
obviously why everything is so cheap to buy here because of the
cheap labour. How much of that is made up, how
much of China is made up of that group?
And if so, like as I assume they can't spend much more because
they earn nothing so. Yeah, I mean, the, the, the big
issue since COVID is that the savings rates are up so much,
right? Because, yeah, for the last 20
years, you have rising house prices.
Why is it rising wage growth? People felt they were getting
richer and happy to spend. And then since COVID, you've
seen, all you've seen is the savings rates going up and up
and up because people are just have a lack of belief in the
future. They don't see that they're
going to be better off in five years.
So everyone's kind of hoarding cash now.
The big problems in China that you have a structurally the lack
of a safety net, right, that most of the medical system is
still private, so you've got to save money in case you get some
nasty disease. Most of the education system,
you need a lot of private money as well for, for all the extra,
you know, tutoring and different schools and things.
So there's a lot of reasons why the Chinese always been very
conservative and tend to save very heavily for a rainy day.
So there's two aspects that Beijing can look at to try and
get the consumer spending again. Number one is obviously the
confidence factor of get them believing that, you know, the
economy will be good, you will be able to make more money next
year. So feel free to to go out and
spend today. And the other thing is, is
potentially reforms around pensions, health care,
education, who Co reform, you know, the registration system,
whether you're in the city or the countryside.
So if they can strengthen some of the social safety net, that's
certainly something to watch out for is more structural reforms
that could try and get the consumer spending more.
Ian, you, you spoke about making the most of the the property
that they've got and that kind of doesn't, doesn't sound too
great for overall demand for commodities.
How are you thinking about that? Yeah.
So start of the year, I said that I'm very bearish on on the
old economy, on infrastructure, on housing.
I think steel demand will be down 3% this year, but I still
think that copper and aluminium demand will be +3 or so because
the green economy is doing. And that's something which even
with the stimulus coming through, I still maintain those
that split in the economy will maintain.
And we'll see a lot of differentiation between
different kind of metals consumption in the coming years.
So yes, I don't see a rebound in steel demand for example, next
year. I think, you know,
infrastructure is probably not going to have a similar drop to
this year, probably come starts to flatten out.
Equally housing's probably not taking another leg down now, but
it's unlikely to recover. So steel demand trajectory
absolutely doesn't look very impressive, but the renewables
build out, the EVs roll out. And then, yeah, in terms of
housing stimulus that you are seeing is all about completions.
It's about buying up unsold units for social housing or
renovating old units. So that still means, you know,
rewiring, installing new appliances, etcetera, maybe
putting solar panels on the roofs.
So there's still a lot of metals demand.
It's just it's not steel. It's going to be more aluminium,
copper, that kind of thing. Yeah, it's very, very
interesting. The whole, you know, consumer
stimulus in China, if you think of it from a like an Australian
landscape, don't think we need any consumer stimulus for mining
companies to know that Grounded needs to build the mining camp.
Well, that's what you don't need.
Like they just know that is the right thing to do.
Like as we described last week, like just from the new law that
you have to like have a builder with Sicilian background to know
that you're going to get the quality, the longevity, the
expertise for any piece of infrastructure on your mind
site. And that would be limited to
Grounded only. You've seen pictures of these
camps, Maddie. They are the worst.
Jesus. Cross their bloody.
Extra room like my great gym facilities.
I just don't think you can beat what can be built by the team at
Grounded. I'd actually say they.
Contacted the Coburn local council and to get permission to
knock down my house and get a grounded camp in to replace it
because they're just even better than my house.
Yeah, it's it's, that is just the the quality of craftsmanship
and the attention to detail, Travis, that Paul Natali and the
grounded team put towards these mining camps is just
unparalleled in the industry. So like.
Get yourself a Crown Plaza out in the Bush.
Oh mate, if you could tower Hilton up it wouldn't even be as
good as a grounded camp. So mate, and we give you direct
access to Paul with his email in the show notes.
Flick him a message and ask for a bloody best mining camp in the
history of mining and camps. One of the reasons that you're
that the the consumer has such sort of negative sentiment
towards, you know, investing domestically is is because a lot
of the policy settings have actually created an environment
where these, you know, these downstream, you know, businesses
are unprofitable because they they have to run kind of under
capacity or utilisation. There's too many of them that
exist because the local governments are all have all
have their own steel mill, have their own yeah, lithium refinery
in those sort of sensors and hence kind of don't have the
efficiencies and aren't necessarily very profitable.
But how do you think about the risk that the policy setting
will actually result in fewer number of remaining steel mills
actually being actually operating and a focus on
profitability in that in that downstream again and the
implications of that could have for example in the iron ore
market? Yeah, Well, that's certainly
something that's that's some discussion at the moment around
should there be another wave of kind of supply cyber falls,
right. That was very successful there,
2016, 1718. And so you saw a lot of kind of
redundant capacity being closed and actually steel mills had had
good margins there and your commodity prices were generally
higher. So there's a lot of people in
the industry who are calling for same again, you know, let's
let's have another round of cuts.
But at the same time, the central government's conflicted
of, of, you know, on the one hand, they're willing to take
the pain for the longer term gain.
You know, we're not short term kind of politicians just looking
for a, for a good story for one or two years.
We're trying to be structurally sound here.
We don't want too much debt and too much, too much negativity
overhanging the economy. But on the other hand, they're
showing a real reluctance to take too much pain.
So you've got huge number of zombie companies in China,
right? And the triple R cuts, the
interest rate cuts we saw for the banks in this stimulus that
read more like a bank bailout because the banks are clearly
struggling with a lot of unrealised MPLS and just having
to endlessly roll over debts. And and you know, the
government's reluctant to push a lot of companies to the end edge
and actually deal with the redundancies and the resulting
problems because there's kind of too much pain from that sense
that was would result there. So they really start between a
rock and a hard place at the moment.
But I do think there there's decent odds that perhaps you
will see renewed talk of things like supply side reforms and
push to perhaps close capacity in some of the Heavy Industries
like steel. And certainly the talk of that
could help help prices and kind of people heart back to the good
old days of supply side reform and they were making big margins
and things. So the industry itself is
certainly encouraging that talk. Have you got an explicit view on
where you see iron ore over the next 135 years?
Well, iron ore has been a real conundrum this year.
I mean you've seen very strong supply growth right now.
Imports in China are going to be up 60 or 70 million tonnes this
year. India's annualising up from from
40 odd million last year to 60. Plus Brazil's had a good year.
Australian exports are up decently as well.
You've still got some new supply coming in Onslow and such
ramping up. So there's been plenty of iron
ore supply. And yet steel demand in China
has been running down about 5% this year.
Now, obviously they've been exporting a bit more steel, so
keeping the steel production not quite down that much.
But still the iron ore port inventures have been rising
throughout the year. There's no shortage of iron ore.
And it's, it's, you know, amazing to me how the price
hasn't been weaker. I've been calling for the price
to fall into kind of the 80s all year because you know, oil
prices are quite low, freight rates are not that high and the
grade discounts are very narrow. That's the most important thing
for the iron ore cost curve. Mills are not making money.
They're happy to buy low grade so that that essentially
suppresses the top of the cost curve, which is dominated by all
the low grade suppliers. So from that perspective, you
know, I've been surprised iron ore's not be weaker.
And then of course on the back of stimulus, iron ore's the one
that's had the biggest move. Now the problem we have with the
iron ore market is the price is just so dominated by this retail
trading in Dalian, right. You look at the Met coal price,
that's entirely a physical market and a very liquid 1.
You look at the aluminium market and that's entirely a physical
market and a very liquid 1. So those markets tend to be very
depressed or or very kind of excited, but they definitely
reflect physical changes, whereas the iron ore market is
just just moves on hot air so much at the time.
And so that's why our iron ore went from $89.00 just before
stimulus was announced to 114 within days.
And like I said, stimulus is not adding steel demand, it's not
adding iron ore consumption. So that's just a complete
overreaction. Can you, can you peel into that
a bit? This is a comment I've heard a
couple of times as we ventured into the, you know, the, the
China kind of commentary. And that's the extent to which
there is like Chinese retail money that massively influences
kind of the the short term gyrations of some of these like
pretty, pretty hefty markets that grab headlines here in in
the West. Yeah.
So I'm, I'm not too sure what the current numbers are on iron,
but I remember a few interesting comments over the years.
I mean, the average holding period on iron ore trades and
Danny Anne was like 2 hours for for a certain period.
You know it's a real day trading market.
And there was more trading activity in the old days,
certainly. I don't know if it's still
current, but there used to be more trading activity in the
night session, you know, when the market would open in the
evening than during the day, which again, shows it's kind of,
you know, retails people just trading.
And I don't know how many of them are trading drunk as well.
So that probably accounts for some of the generations.
Is this the futures? Market is.
Is this the futures market you're you're referring to?
Yeah, the Dalian Dalian exchange, yeah.
Wow, that's that's amazing. And and that's not seen in most
other commodities. Is that right?
It's extreme on, on, on all, yeah.
It's just Dino is just dominated.
You know, the Dalian volume is much, much greater than the SGX
volume, which is kind of like the the Western trading market.
But then even on the SGX volume, I think an awful lot of that's
kind of Chinese arc trade as well following the Dalian moves.
Whereas, yeah, when you look at the base metals, obviously LME
comics, they've still got massive volumes outside of the
SHFE market. And so that's where you tend to
see the base metals a less volatile because I'd say you've
got more international trading money that's offsetting any kind
of retail in China. Whereas iron ore just doesn't
have an offset. You know, it's that Dalian
market just dominates. If if we change tech in India is
a country that a lot of people have spoken about the, the sort
of cool narrative and you, you seem to hold that view as well.
Maybe I'll just give you a, a sort of broad angle to, to start
with what you're thinking of India and then came to get into
METCO specifically. Yeah.
So when I was living in China in the 2000s, you know, there were
all these bullish Chindia reports doing the rounds of,
hey, India's got a billion people that can follow China.
And I was always highly sceptical, right?
And I went to India a few times in the 2000s.
It's nothing like China and nothing could ever get done
there, right? It was kind of bureaucracy or
land access rights. So there are a lot of problems
where where just things didn't progress very quickly, power
availability, etcetera. Whereas post COVID and I'm
speaking to a lot of my India contacts and people doing
business there, but they were saying, well, things have really
changed, you know, demands jumped up and looks really
sustainable. So I went there again last year
for the first time since 2009, completely transformed.
It's amazing. I think Mode has done quite a
few important key changes there. Number one, he invested a lot in
infrastructure early on. So India hasn't really suffered
blackouts, brownouts on the power side since about 2019.
Power supply is plentiful and they're taking the renewables
from something like 200 gigawatts to 500 gigawatts by
the end of the decade, massive investment in that.
And they're still adding another 80 gigawatts of thermal power as
well. So you've got huge investment in
power. You've had big investment in
airports, like flying around. It feels just just like, you
know, China or anywhere with modern airport facilities,
everything works much better, roads as well, ports.
So you've had a lot of infrastructure investment early
on as well. Modi did this cancellation of
all the banknotes when if you remember that, and they kind of
bought all the banknotes into the banking system and that's
helped to eliminate a lot of the corruption because everyone has
bank accounts, a lot less cash oriented, digital money and
everything. A lot of the social handouts now
or digital money will direct into people's bank, bank
accounts as well. And if you're paying everything
digitally, there's less room for officials to be dipping their
hands in as well. Less cash being handled equally,
digitisation of government. So they've streamlined a lot of
processes, a lot of the forms, documentation, everything now is
on a system. It's online.
You're not actually going to a physical person needing a stamp
or a signature or something. Again, that's removing a level
of potential corruption, speeding up the processes with
the paperwork and everything, you know.
Yeah, bankruptcy reform, a bit of land access reform and stuff.
And so India's got a number of key drivers now.
So they keep hiking the infrastructure budget.
I think they've raised the infrastructure budget 1/3 every
year for the last three years. This year it's only up 11% with
the with the budget being a bit more responsible.
But they've still got big plans on infrastructure.
They're going to electrify the entire rail network.
India is already starting to build a Japanese bullet train
network. It's the only countryside
country outside of Japan that's actually going to have bullet
trains, and I think the Japanese government's lending quite a lot
of the money for that at a state level.
But yeah, the first one will be up in in 2026, so don't know.
They have to culturally. No more sitting on the roof at
400 kilometres an hour. That'd be a bit of a change, but
should be revolutionised. They're moving around India with
bullet trains there, as I said, the renewable energy build out
as well, you know, going up to 500 gigawatts by the end of the
decade. One of Modi's pledges in the
election was free power for all the rural households.
So they've already started a programme this year of 10
million rural houses getting free solar installations.
So people have got free access to power.
And then you could charge your electric bike or something as
well for free. I'd say big plans on the
infrastructure side and any other thing that mood is doing a
great job of trying to attract all the FDI.
So saying to people, why don't you move your factories out of
China, come to India, so going to the the freedom loving
democracies and say, hey, we're a freedom loving democracy.
You should be investing here for for security of supply.
And then of course mode is at the BRICS conferences as well.
Good friends with the BRICS guys get them to invest as well.
So he's doing a good job of kind of being mates with everyone at
the moment and trying to attract investment from everywhere.
So that's where India's really interesting, because India
doesn't really have much of a manufacturing base at the
moment. I believe India only produces
about 2% of global goods and consumes about 4%.
But Mode is really trying to attract all this investment with
this Made in India scheme. And you're seeing a lot of big
companies starting to put factories in India, big
government subsidies encouraging that.
So yeah, you've basically got the infrastructure side, the
green energy side and the manufacturing side all being
built out. And, and you put that together
and, and it's giving very strong growth rates for commodities
demand. So if you think of India versus
China today for steel, you know, India's 140 million tonnes of
steel production versus China at a billion, it's about 15% of the
size. It's growing at about 10% a
year. Whereas the base metals are more
interesting things like copper and aluminium.
India's only about a tenth of the size of China, but it's
growing at a 15% kega, which looks very sustainable.
So if you think of that for the world, you know, China's 50% of
global copper demand growing at 3% a year, then that gives us
what, 1 1/2 basis points of global growth.
Whereas India is only 5% of the world, but growing at 15% a
year, that's giving us 75 basis points of global growth.
So India actually in absolute tonnage terms is about half the
size of China already on an incremental annual basis.
So it's not just that it's a nice tailwind for commodities.
I think you can really start to make a difference now.
Yeah, speaking like about the rise of India, I guess who, who
do you think is going to rise first out of India and race,
botany and Australian earthworks and haulage?
Race botany's already already risen, You know, India's still
rising well. Because since IEH is like
anytime expiration V2 like anytime expiration, I'd call
China and then. Race India.
Race and IEH are probably going to be the India which probably
will surpass China. Rising at a faster rate.
Yeah, yeah. Wouldn't you think, JD?
I think you've hit the nail on the head there mate.
The the way I say the vertically integrated relationship between
anytime exploration in Australian earthworks and
haulage like Reese is the cake. Sheamus is the cherry on top.
That's like like between the earthworks haulage bloody that
can work absolutely remote as like it's just bat shit crazy
how remote these guys can work unsupervised with any time
providing the field he's in G OS to oversee the earthworks, the
rehabilitation, the damn building all with the expertise
of races decades worth of bloody earthworks experience.
You just I hope you got the phone in your hand now.
His numbers in the show notes. Just like India, Maddie, it's
one you don't want to miss mate. Just give him a call.
He is the Tendulkar of earthworks.
I think the the people who've been like a bit, you know,
trepidatious about certain commodity markets point to the
growth of India as as sort of filling a gap that that, you
know, China as China's demand might sort of, you know, ease in
certain areas. Is it as simple as, you know,
they seamlessly fill a gap or, you know, do you think you kind
of have pretty substantial volatility in in between where
you know things could get a bit dicey?
I think it's different for different commodities, right?
So look, the biggest kind of beneficiary of the Chinese
growth obviously was iron ore because China just geologically
doesn't have much hematite. Iron ore had to rely on high
cost magnetite and that's where it just became so big on the
iron ore import side of things. Whereas for for India, it's it's
all about met coal, right? India has an abundance of iron
ore, has an abundance of thermal coal will be poor quality, but
it has next to no met coal. So for commodities like met
coal, India is already the biggest importer in the world,
surpassed Japan a few years ago, 70 million tonnes a year out of
a global market of about 300 million.
But India is going to double its blast furnace steel capacity by
the end of the decade. So the met coal imports are
going to be huge, potentially even even with the green steel
revolution going on in Europe, North America, North East Asia,
where companies are looking at closing blast furnaces and
opening Eafs or kind of green steel basis.
I still think the global met coal demand grows over 20% in
the next 5 years with very little supply additions.
So that's where met coal is a massive beneficiary of the India
story. Equally, copper, India doesn't
have much copper geologically, so it's going to be a big
importer of copper as well. I just had Adani just switched
on the world's largest copper smelter earlier this year, half
a million tonnes a year. That's partly why copper TCS are
so low, because India's taking a lot of the copper concentrates
away from China this year. Aluminium as well.
At the moment, India's a big exporter of aluminium primary
and then imports a lot of aluminium products.
But again, you know, the aluminium demand growth means
they'll, they'll, they'll be consuming a lot more of that as
well. So it's a different story for
different commodities, I think for India.
Just on, on copper there, Ian, we've seen a pretty volatile
year in copper prices in in part because of the the changes in
TCRCS and how they've just really been been crunched over
2024. Have you got insight on, on that
sort of trend? Is that something you expect to
keep going for the for the foreseeable?
Yeah. So there's definitely some
interesting things going on in the copper market this year.
So normally we look at the TCS as a good lead on refined
prices. And yeah, if the TCS are tight,
then that means surely the the refined market's going to
tighten up later on because there must be a lack of
concentrate to produce the refined copper this year.
That's not quite come true, right.
It's a little bit more of an issue if we had a number of ex
China smelters coming through. So, yeah, we've got India, this
half million Tadani ones starting up.
Ivanhoe started the smelter in their African project.
Grasberg's been trying to start the smelter in Indonesia or
their corset that's been having problems.
And there's another smelter that started up in Chile this year as
well. So we've only got global mine
supply growth this year anyway of 2 1/2, maybe 3% globally.
But we've got a lot more smelter additions outside of China.
And that's meant that there's just a lot less concentrate
available for the Chinese market, which also has its own
smelter additions this year. So that's where the concentrates
have gone extremely tight. And you know, the TCS, spot TCS
even went negative for a period. And you're like, well, how's
that possible? You know, how can spot TC be
negative? So the other issue from the the
smelters perspective, of course, is, is the, the byproducts,
things like gold, right? The gold credits for some of
them with gold prices being as high as they are.
And one of the Chinese copper smelters was telling me every
$100.00 an ounce on gold is about $10 on the TC for some of
the concentrate supplies with decent gold content.
So that's another reason why the Chinese are just paying
ridiculously low TCS for, for to secure the concentrate supply.
So yeah, there's quite a few technical factors there.
Whereas this year it's been more about ex China smell to growth
having outpaced the mine supply growth, whereas yeah, next year
your mine supply growth will continue.
Yes, you've still got the ex China smelters ramping up.
It's definitely going to keep TCS very tight.
But it's going to be interesting going into negotiating season
because I think there will definitely have to be some
changes to the the kind of the idea of an annual TC or just one
price agreed for all smelters globally.
I don't think we're going to see that.
I think systems definitely going to break apart, perhaps similar
to what we saw with iron ore in 2008, nine when that broke
apart. One of the things we saw over
the past 20 years with the growth of China was China
actually going, signing JV's, trying to buy assets all around
the world. Do you do you expect India to do
the same? That's a good question.
I mean, it seems to have been quite reluctant so far for
things like METCO where the steel mills know they, they
desperately need METCO. But at the same time they, they
don't seem willing to say overpay for assets, right?
They're still a little bit disciplined in, in what they're
willing to pay. And they, they view themselves
as we're Steelman's, we're not miners, we don't know how to run
mines so much. So I think there's a reluctance
to, to go upstream on that side. But then you have seen some
transactions, right? You've had Jim Dao bought the
Motis assets from from Valley last year.
But yeah, it's certainly a big question mark for India where
they're going to get the met coal from.
So one of the fascinating things last year, the Indian Steel
Association sent a delegation to Mongolia and I was asking them,
well, how are you going to get the coal out of Mongolia?
You know, the Chinese will never let you rail it through China.
And the Trans Siberian is jammed with Russian commodities into
the seven East Coast ports. You're not going to get it out
there. And a couple of months ago, the
Indian government actually announced investment in ports in
Iran with the idea that they can rail cold 7 1/2 thousand
kilometres northwest out of Mongolia, across Russia, down
through Georgia and Armenia, and across Iran, and then ship it
out of Iran into India. So you can imagine what that'll
do for the cost curve 7 1/2 thousand kilometres of railing
now that those rail lines already exist.
I mean, Iran gets a lot of Russian commodities via that
rail route. So it would also open up kind of
more, more commodities from Russia into India.
So yeah, they're just adding the bulk pork capacity in Iran with
an idea of of shipping it that way that.
Trade relationship between Russia and India is, yeah,
particularly interesting with like, you know, all the reports
that some of the the growth in India of of late has been kind
of propped up about because they're, they're buying like
discounted oil from Russia because no one else in the world
is buying it from Russia. Yeah, yeah.
So that's where Modi's kind of treading a fine line at the
moment of being everyone's friends, right, where he says
one of the freedom loving democracies of the world and and
you know, mates with all, all the democracies.
But equally, yeah, happily part of the BRICS club as well.
Very close with Russia obviously from their kind of the military
supplies from a budget standpoint.
And then, yeah, taking a lot of the Russian commodities.
And I think also the Russians are quite big investors in India
as well. So, yeah, it's a very kind of
close relationship there that that's see giving them cheaper
inputs for the last couple of years, whether that continues.
How do you think about the the sort of bear case view on India
if it if it doesn't materialise in the next over the next
decade? I think so.
The problems historically, like I said, was a lack of
infrastructure and a lack of the ability to execute where people
would have plans in India, but they just never get anywhere
right, Can't get land access, can't get approval, you know,
can't get access to to power or resources or things.
So those things do seem to have structurally changed where the
government's willing to encourage investment, it's
willing to to kind of help people get things done and
making the resources and the infrastructure available.
The other issue for India historically, I guess, has been
the politics side of things where, you know, politics kind
of becomes a factor that gets in the way and delays things or
changes and moves the goal posts continually.
That's something where on the one hand, yeah, you've seen Modi
won the election again in April and and seems quite solid at the
moment. But equally, putting aside the,
the politics at the central level, the states all seem to be
wanting to participate in this growth.
Even if the state is run by an opposition party, you know, not,
not one of the BJP alliances, they're still, they're not
standing in the way of growth because it seems every single
state doesn't want to get left behind that I can't be a state
where I'm, I'm get a reputation that I can't deliver or you
can't do business here because I'll get left behind.
People go to other states. So even when they've got
political differences, they still seem economically these
days to be, you know, willing to push the investment to, to, to
get the ports and the roads and the rails and everything down to
try and attract the FDI and the investment.
So yeah, it seems on a very sound basis at the moment.
Very, you know, we've seen decent growth rates since COVID
and I really do believe they are sustainable.
If we, if we move away from India now you, you cover the,
the battery with the energy, the new energy materials space as
well. And nickel and lithium,
obviously sort of key, key parts of this, both having a bit of a
tough time at the moment. Why don't we start with lithium?
Because I'm sure most people will be keen to hear about that
one. What, what do you make of the
the build out in China of, you know, how they've just expanded
so quickly and being able to produce so much and the sort of
debate going forward between Bryan's Hard Rock assets and,
you know, potentially clay projects going forward?
Yeah. I mean, the astounding thing in
lithium is how rapidly the Chinese have gone overseas and
developed mining assets. But you know, in iron ore they
were very slow to do that. But that's because iron ore
needs big, heavy infrastructure. Obviously, the actual volumes in
lithium are a lot smaller. You can get away with just
trucking projects. So it's amazing how how much
mine supply, Chinese sponsored mine supply has emerged just in
the last year out of Africa and such, like just kind of small
simple trucking shovel projects that that, you know, low CapEx,
maybe higher OpEx, but they get the tonnes quickly.
So China's been very aggressive in that investment, mainly on
the private side more than the state side.
And they seem to have, you know, ensured that they've got enough
supply now. And that's where the lithium
market's really in trouble. So yeah, the Chinese lithium
demand still growing very well. EV sales in China are up 30%
this year. We've had kind of cash for
clunkers upgrade policy since April.
That's helped support the sales. So total auto sales have been
struggling this year, but EV sales still up 30%.
Now the problem from a lithium perspective is, is hybrids,
right? Hybrid sales were up 80 odd
percent last year, again this year soaring as well.
So the actual lithium intensity per unit essentially has been
declining. Even though the headline growth
numbers are good, but lithium prices have really been
suffering about worries on the export demand right through the
supply chain, EV exports. Obviously we've seen
protectionism coming in US, Europe, elsewhere.
So there's worries there on the EV exports, but also the battery
exports, the, the, the process lithium exports, you know,
through the supply chain. The Chinese market players are
very concerned about X China growth and the way that the EV
sales globally have just cooled so rapidly.
That's really the thing that that's got everyone on the back
foot because, yeah, the Chinese have built so much capacity
through the battery supply chains and the domestic demand.
You know, I mean, the the domestic EV penetration is
running ahead of the 2030 targets now.
You know, it's going extremely well, but it's the Western world
demand where which has really disappointed this year and and
that's the thing that that sent the price down while the supply
has been coming through aggressively.
What do you think about Rio Tinto's thesis for the Arcadium
takeover? About the future of Braun and
DLA being the big contributor to the front of the cost curve, no.
I'm not really familiar enough on that to share any thoughts?
Sorry. Yeah.
On the, on the, on the, the, you know, the copper, nickel, you
know, aluminium kind of side side of the equation.
You know, I'm, I'm kind of, I'm curious to see how you, how you,
you know, what your views or non consensus views might be, you
know, on those, on those other commodities.
Yeah, so, so for the battery material side of things, I've
long said copper's my favourite because look, we just don't know
which battery technology is going to win, right.
Essentially you're in this kind of Betamax VHS battle.
You know, a few years ago it was all about NCM, now it's about
LFP, you know, next year the Chinese already bringing out
solid state batteries. It's the technology has just
been evolving so quickly at the actual battery level.
But we know they need the cables, right, The wires and the
cars and the charging infrastructure.
We need mass grid investment globally for the charging
infrastructure. I think that's part of the
problem why EV sales have fallen flat in so many countries
globally, because people are buying them and finding the
charging infrastructure is just not there.
That's what Western governments need to be investing in if they
want to encourage EV roll out. So to me copper is, is really
the beneficiary or the one to focus on for that kind of EV
related demand growth. Whereas yeah, nickel is really
suffering a on the supply side of the way.
Indonesia's come in and just gone from nothing 10 years ago
to this year. It's going to be 2.2 million in
a three and a half million tonne global market and pushing on
still another 30 odd MHP and Mac facilities coming in the next 18
months. So Indonesia's built all this
supply on some of those heavy projection growth rates for NCM
from a few years ago. And of course now they've fallen
flat because LFP has taken all the market share.
So nickel looks really, really challenged where yes, we need a
pain trade there. We need some of the high cost
supplies to be sidelined and we're seeing that happen now.
But I don't think that means we start a new cycle anytime soon.
I think nickel is going to going to be struggling all the way
through next year at least as well.
Whereas yeah, copper's the favourite structurally because
that added demand from the EVs, from the charging infrastructure
on top of what we're already seeing on the green energy
revolution, wind farms, solar panels, etcetera and all that
again, wiring them into grids and just the lack of copper mine
supply growth. So that's, yeah, copper's
absolutely the favourite. Nicole not so keen on at all.
You, you posed the question when, when a price is going to
move sustainably high enough to incentivize new production or
whatever the outcome might be. Have you, have you been brave
enough to to put a timeline on when we see that leg up in
copper prices? Yeah.
So to me the copper prices have always been about scrap
generation. So I used to have a great chart
from Google Trends where if you search Google Trends for
articles about copper theft, then that used to match the
copper price really well through the those peak prices in the
early twenty 10s. So it's almost like, you know,
the criminals are out there on their smartphones going, hey,
enemy copper's up tonight Lance, let's go RIP off some more
wiring. We're willing to risk
electrocution at 12 K, but you're not willing to risk that
at 10K or something. It's that's really a marginal
supply. I wouldn't say there's there's
any mines in the world which are not operating at $10,000 copper
but will operate at 12,000. You know, for your marginal
supply, it's all about incentivizing the scrap
generation. So that's what we're kind of
running into in these these these coming years where we're
going to have the demand outpacing the mine supply
growth. We're going to need to generate
more scrap. And if we're going to need to
generate more scrap now than we did last year, we're going to
require a higher price to to pull in those marginal scrap
units. So yeah, I've got kind of view
that proper prices are just continually higher in coming
years. You know, obviously we hit the
$12,000 level back in May when we had all that fast money
coming in on AI and data centres and all that over excitement,
and that quickly evaporated. But yeah, I think that kind of
pricing will be quite achievable early next year when when the
market's really in deficit and the Chinese demand keeps coming
through and India's doing really well.
And yeah, the big thing we're waiting for in commodity land, I
think is a bit of a a Western world restocking It's.
An interesting way to frame it, it's like, what, what, what
price does copper need to be to incentivize people to steal more
of it? Yeah.
That's essentially it, yeah. Trev, Trev mentioned aluminium
before as well. So I think we'd be remiss not to
talk a bit more about that given what's just happened in the, the
past couple weeks with alumina prices just flying, breaking
through 600 bucks. And you know, what we've also
learned the past couple weeks is all this fragility through the
system, this this sort of choke points where the whole system is
very contingent on a, a few factors.
I think the, the prime example is Guinean supply for the bulk
site. Do you think that fragility just
lends itself to regular disruptions over the the coming
years? Yeah, absolutely.
Yeah. It's so we've got a much tighter
global aluminium market now as opposed to Granana closure and
stuff. And yeah, the like you, you
touched it there on the Guinea side of things.
So I'm wondering if this is going to become a seasonal
factor similar to what we have in the met coal market.
Actually where you've got China's now reliant on imported
bauxite is about 70% of their supply and of that 2/3 is from
Guinea. So Guinea alone is about 1/3 of
Chinese bauxite supply. Guinea has rainy season from May
to July. So this the exports are down
sharply. And of course that means Chinese
import arrivals are much weaker in the third quarter, which is
when China's in peak hydro season and their aluminium
productions are running at record highs, pushing up to that
45,000,000 tonne production cap. So you've got a real inverse
seasonality there between the imported bauxite supply and the
domestic Chinese aluminium production.
So when the prices spiked back in June, and I was saying, well,
you know, this is going to be quite sustainable till November
because historically when alumina prices have spiked,
you've seen Chinese exports come out very quickly because China's
never really struggled for bauxite supply as an abundance
of, of alumina refining capacity and was able to switch on very
quickly when the price incentive was there.
That's very different now post COVID, both iron ore, zinc of
oxide, you know, it's just impossible to mine anything in
China these days unless you're already in existing mine.
The anti corruption environmental rules, you know,
have just decimated the elasticity of those supply
curves in China. So there's no supply response in
China on mine supply. And equally the refineries,
there's still plenty of spare refining capacity in China, but
because the Ghanaian volume is not there, they weren't able to
ramp up either. And with the domestic production
of smelters being so high in three Q, they were what they
were producing extra was going domestically.
So yeah, that that's the problem that we have now as a seasonal
trade. Could that be repeated next year
and and increasingly more so going forward?
And that's a big question for me.
The alumina could start to develop that seasonal trade.
So the bizarre thing is how the aluminium markets just not the
aluminium markets not followed through.
You know, if you remember two years ago when LME aluminium was
$4000 on the back of, you know, high energy prices every day,
you know, the aluminium traders, LME traders are talking about
our spot. European power prices are up.
You know, aluminium's up, and that wasn't a real cost curve.
Who's producing aluminium with spot power?
You know, most smelters have got contracted power.
They're not using a spot unit of power to produce reduced
aluminium. Whereas the alumina price is
real. Even if people aren't buying a
spot cargo over alumina, an awful lot of people have got
contracts referencing the spot prices.
So a lot of smelters globally have got to be feeling of that
uplift in the alumina price and that really should be pushing
the, the aluminium cost curve about say $3000 LME basis.
But the aluminium price has been very slow to move.
And yeah, I, I just think people are not understanding what's
changed. You know, the, the, the normal
answer I get is luminous price spikes never last long.
You know, it'll be back down again in a few weeks.
So don't chase it. Whereas it's not been up now for
three months. Like I said, it's just had
another fly up in the last few weeks as well and the risk is it
stays higher now, you know, could well be into next year.
So yeah, LME aluminium, Surprised it hasn't moved
already. It's really lagging.
Is, is that the market you'd sort of pick of the the bunch
there that's most misunderstood? Is there is there another one?
That one I mean. I think I'm I'm a prime example,
but are there other ones you think are super misunderstood?
Yeah, that's one that really stands out and and certainly for
this year just in terms of something that's changed
dramatically. But my other big, big one is
metcoal where that's structurally and very bullish on
metcoal. And equally that's got a very
interesting seasonal pattern because you know, iron ore.
The nice thing about the iron ore market seasonally is that
Chinese New Year always January or February matches the West
Australian cyclone season and the Brazilian rainy season.
So you have both demand and supply both week in the first
quarter of the calendar year and then you know both pick up after
that. Whereas for Metco, you've got
India, the biggest buyer is on monsoon season from May to
September with reduced steel production and then they come
out of the monsoon season and ramp steel production Q4 into a
peak in Q1, which of course is exactly when Queensland starts
to suffer from all the rains and cycling.
So you've got a real inverse seasonality in Metco where your
biggest supplier out of East Coast Australia is offline at
the same time as as the biggest producer India is, is, is
pushing its production to peak levels.
So you've seen for the last two years and again this year looks
like being a repeat where metcoal prices have been 300
plus dollars at some point in Q1 on a cyclone induced spike.
But middle of the year they're down to $200 because the Indians
are suffering from monsoon season and Aussie productions
back up to normal levels. So you've got a real interesting
seasonality there in metcoal, which I think could just get
more and more extremes as as the Indian demand grows and grows.
I wonder the commodity traders make so much money.
Ian, I've got, I've got one, one last commodity.
I just want to touch on a bit out of left field, but nobody
talks about it and you cover the the base base.
I wonder if you give it any thought Zinc.
Is there any reason to get excited about zinc?
Does it stink or does it smell good?
Oh, it, it smells good at the moment.
Yeah, it's, it's, yeah, Zinc's had a very good year already.
Price has been up towards $3000 for much of the year, which
historically is very high level. You've seen a lot of zinc mines
supply disruptions globally, right?
Peru, Australia, 2 biggest suppliers.
And again, as I said, on the China domestic side, it's
something where we've lost that elasticity of domestic zinc mine
production as well. So the zinc concentrates markets
been extremely tight. That's really hurt the Chinese
refined zinc production as well. That's the refined zinc
production is really struggling because of that lack of
concentrates. So yeah, in copper, they've
found a bit more scrap. They've managed to maintain the
copper production and they had very high concentrate
inventories carrying over the last year that have helped.
Whereas in zinc, that concentrate tightness is really
feeding through to the refined zinc market in China.
So refined zinc production's down and China's having to
import more refined zinc from the global market.
So that's, yeah, really tightening up the global market.
And steel production obviously has suffered a lot this year.
Steel's about 2/3 of of zinc consumption goes into Gulf
steel. Of that, about two thirds is
into autos. So with this Chinese stimulus,
you know, that should certainly help auto sales, appliance
sales, you know, a lot of those end use zinc, galvanised steel
markets. So I think the zinc demand will
be doing better in China in coming months, whereas the
supply side still very challenged, doesn't look like
that can recover until at least next year.
So I think, yeah, seems already quite punchy today.
You know, aluminium prices have really underperformed.
They should catch up. I'd say zinc.
The prices have done well, but they certainly look sustainable
here. On a kind of three to six month
view, it looks like a very tight market.
Where? Where were the disruptions in
Australia for Zinc North QLD? Yeah, was it, Do your rivers
have have issues or not? Yeah.
Century zinc soft line as well. Century.
Yeah, fantastic. Ian, I am all out of questions.
I think I've peppered you with enough.
Bellis, do you have any more for Ian?
Thank you so much, Ian, If, if there's, you know, one last
thing, you kind of want to leave our, our listeners with
something, you know, some something we should all reflect
on or, or something non consensus that you've been
pondering. Love to hear it.
Yeah. So I'd say the key thing really
and obviously India, we've got the structural growth story and
and that's still very under appreciated, you know, but as as
the demand keeps printing strong numbers, hopefully they'll get
more and more attention. But the other thing is on the
China side that it's not just one China as it was for the last
20 plus years. It's about the split between new
China and old China. And that gives very different
stories for each of the different commodities.
Excellent mate, amazing. Thank you so much for.
Your time in. Thanks for that bud.
Cool. Good stuff.
Cheers guys. Oh boy, Jay, let's talk about
buddy. Something that's in your
wheelhouse and not mine. You love that shit.
I had a feeling you might say that.
And yeah, I did love it. There was a good few details in
there that I hadn't heard before.
So very, very fascinating and awesome that we get a chat with
these folks. Yeah.
It's amazing how I can. Good intro but.
Yeah, good intro. It's amazing how consensus like
long copperies, everyone's long, everyone is super, super bullish
copper. It's just it's an amazingly
consensus for you for. The last four years.
Yeah. But yeah, maybe it's when people
are fatigued that actually just. When are they going to give up
Trev and just let it go up? Well, I also think it's so
consensus in our very niche world of the market.
You know, it's like it's, it has gone beyond that, you know,
beyond. And it did when copper ran over
5 bucks. That was like hedge funds and
these sorts of characters who aren't always playing in, you
know, mining stocks or whatever. They might look at commodities
more broadly, but it's a smallish part of the world.
MMS are going to be mining a large part of the world soon,
JD, did you know that? They are and grounded are going
to be supplying houses for a large part of Perth.
Pretty bloody. Pretty much MMS do a bit
grounded, Chuck the camp in for it.
Crossbound your energy will Chuck your power station in for
it. Bloody savical put the ground
sport in for if it is an underground mine CRE.
Got you insorted. They'll insure the mine,
Greenland's equipment will sort the water infrastructure out for
the mine. K drill will find the mine.
Before this happens. MMTS would have got the tenement
sorted for K drill to go. Start drilling on it and
Australian and look at haulage. Would have cleared the site, put
the dams in K drill to do the holes and then once it's all
gone you'll see how it's performing on the stock market
Morris Park chart. Fantastic.
Mate very money miners. The information contained in
this episode of Money of Mine is of general nature only and does
not take into account the objectives, financial situation
or needs of any particular person.
Before making any investment decision, you should consult
with your financial advisor and consider how appropriate the
advice is to your objectives financial situation.
And needs.