Column: Top five contrarian commodity scenarios for 2025
Overall, the first part of 2025 is likely to be defined by a period of uncertainty.
The S&P/TSX Global Mining Index has gained 14% since Sept. 6 in its biggest jump this year after central banks cut interest rates, the United States signalled more battery metal funding and China stimulated its sluggish economy.
The index, which includes the largest majors such as BHP (LSE: BHP; NYSE: BHP; ASX: BHP), Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) and Freeport-McMoRan (NYSE: FCX), hit 203.6 points on Tuesday from 177 points 19 days earlier. Tuesday’s 3.5%-jolt was the strongest single-day increase so far this year.
China’s central bank this week shifted its approach on a few fronts as the country strives to expand its economy by 5% this year. Its similar target last year was the lowest in more than three decades.
The US Federal Reserve cut its benchmark rate by 50 basis points on Sept. 18 in a move going beyond tackling inflation to help boost employment. Also, Washington conditionally handed out some of its $7 billion in Biden administration funding for the domestic electric vehicle supply chain.
Beijing, which controls the world’s largest mining and metals industry, said it will start using asset prices and inflation to set monetary policy targets instead of credit growth. It also lowered the reverse repo rate, which sets the cost of short-term borrowing for commercial banks, by 20 basis points. It moved to cut interest rates on outstanding mortgages by 50 basis points, which could benefit 50 million households, it said.
“This (policy shift) will likely involve relatively significant purchases of domestic debt and equities, with major banks recapitalized using foreign currency reserves,” BMO Capital Markets commodity research direct Colin Hamilton said in a note on Tuesday. “The question will be whether (the interest rate stimulus) is enough to boost weak consumer sentiment. Chinese equity and commodity markets rallied strongly on this news.”
This week, the US Department of Energy said it may grant $225 million to the Standard Lithium (TSXV: SLI, NYSE: SLI) and Equinor (NYSE: EQNR) South West Arkansas joint venture project. It also suggested $166 million in financing each for South32’s (LSE: S32; ASX: S32) Hermosa manganese project in Arizona, and Australian company Element 25’s (ASX: E25) high-purity manganese sulphate monohydrate plant in Louisiana.
The Federal Reserve’s first interest rate cut since early 2020 saw gold rise and the combination boost equities. Gold producers’ cost of capital should fall while their metal assets increase in value, experts like Sprott managing partner Ryan McIntyre said.
The S&P/TSX Global Mining Index gained less than 1% to 127.43 by mid-Wednesday in Toronto. It’s gained 22% from 104.11 a year ago.
Other members on the index are Southern Copper (NYSE: SCCO), Newmont (TSX: NGT; NYSE: NEM), Agnico Eagle Mines (TSX: AEM; NYSE: AEM), Barrick Gold (TSX: ABX; NYSE: GOLD), Wheaton Precious Metals (TSX: WPM, NYSE: WPM; LSE: WPM), Teck Resources (TSX: TECK.A, TECK.B; NYSE: TECK) and Franco-Nevada (TSX: FNV; NYSE: FNV).
China’s National Development and Reform Commission, which drafts and implements the government’s five-year plans, approved a raft of new infrastructure projects in August after loosening restrictions on transport, industrial and office developments, Hamilton noted on Monday.
“With steel and coke prices now also trending higher, we are becoming more confident of improved fourth-quarter demand conditions,” he said. “Concerns are mounting that Beijing will fall short of its 2024 growth target of ‘around 5%,’ leading us to expect large scale economic stimulus announcements towards to the end of the year.”
