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Tariffs on… tariffs off -> metals are back to pre-'Liberation Day' levels

It's been an exhausting 6 weeks since 'Liberation Day'; tariffs have escalated and de-escalated but after all of the volatility, key metals prices are back to within 3% of levels on 2nd April, with industrial metals recovering & gold giving back gains. Prices are the same, but has the fundamental outlook changed?

  • Demand:Physical markets have generally held up relatively well and whilst forward looking indicators (PMIs & port trade data) have turned down, we do not yet see obvious signs of a sharp/synchronised demand slowdown. US-China tariff de-escalation has reduced downside risk to global trade and China continues to implement measured stimulus to offset tariffs rather than driving a powerful economic/commodity intensive demand impulse.
  • Supply:In general supply trends in 1Q have been supportive.Copper minesupply was weak with a number of key producers needing to lift production for the rest of the year to meet guidance (some will inevitably miss); but China refined output run rates remain strong.Iron oreshipments have been weak YTD largely due to wet weather in Australia in 1Q.Aluminiumsmelter run rates have been stable with China close to its 45mtpa cap. Seabornethermal&met coalshipments are down YTD but recovering somewhat after a weak 1Q.
  • Inventory:Base metal inventories are broadly following seasonal patterns in China and LME inventories are generally stable (i.e., not sign of sharp demand deterioration). Copper is experiencing physical market distortions due to the Comex vs LME premium resulting in inventories moving from LME/China to US.
  • Outlook:In our view metals markets priced in tariffs and have now largely priced them out again. Assuming a more benign tariff environment, incrementally more China stimulus, higher US/Europe demand to support reshoring and sustained demand underpinned by electrification, in our view the big picture medium-term outlook for demand has not materially changed with base metals remaining robust vs a more challenging outlook for steel/coal. However, near-term we continue to see risks to demand due to:(1)trade war uncertainty;(2)moderation/reversal of pre-buying;(3)tariff distortions to trade flows normalising (copper).

What's priced in for mining equities?

'What's priced in' sounds like a simple question, but for the miners in our view it is not as it incorporates a view on valuation methodology/target multiple as well as the sensitivity of earnings to commodity prices. During recent volatility we have provided a framework for Industrial metals & gold miners to assess 'What's priced in' based on a range of target multiples & commodity scenarios. After the tariff de-escalation relief rally we focus on how spot EV/EBITDA multiples for the miners compare to 2yr and 5yr historical averages to identify relative value opportunities in a scenario of near-term consolidation in commodity prices.

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