Metals & Mining

Aggressive US Federal Reserve policy reversal to move ahead of the inflation curve, a super strong US dollar rally, increased geopolitical angst and supply chain, energy tight margin compression drove a volatile equity market for global mining equities. More diversified metal producers, especially ones with net long coal and energy exposure well outperformed global equities as did US coal producers. Increasingly consensus expectations of a mid-to late 2023 US economic recession supported by a steep US Treasury yield curve, lagged impact of monetary tightening and waning consumer demand will likely drive continued volatility among commodities and the underlying equities. However, we argue more important drivers for fundamentals will be the continued downward trend in the US Dollar relative to emerging and developed economies, as global central bank authorities accelerate monetary tightening relative to the US Fed, where market observers anticipate the long awaited interest rate policy pivot during 2023 the pace and scope of an eventual Chinese economic recovery, although not seen yet, from strict pandemic-driven lockdowns. We believe metals & mining equities should better reflect generally supportive supply/demand fundamentals as anticipated economic recoveries drive improved metal demand while several structural barriers continue to limit efficient supply growth during the next few years. We expect global miners will better reflect prospects of early cycle global economic growth, less restrictive monetary policy, metal supplies continuing to lag demand expectations, and the dollar normalizing at below current levels. While global de-carbonization policies and implementations remain accelerated from governments and private sector forces, those desires will require additional supplies of non-ferrous metals.