Metals & Mining Sector Update : A new cycle born out of necessity – Wired by copper, backed by policy by Emkay Global Financial Services Ltd
A repricing of reality is underway in global metals. The structural supply tightness, rising cost curves, alongside strong policy backing are rewriting the mining investment case. Copper and critical minerals now anchor a new phase of strategic extraction – a cycle born out of necessity, in our view. Copper prices are trading close to record highs of USD11,000/t, with the recent uptrend supported by cyclical inflection, supply disruption at the Grasberg mine in Indonesia, and a favorable macro backdrop (with expectations of Fed rate cuts). Demand tailwind remains well supported, with the megatrends of data center buildout and electrification indicating that copper would head into a sustained deficit in coming years which would catalyze durable price strength. With limited direct plays for critical minerals, our favored picks are VEDL and HNDL.
Synchronized global necessity
Years of capital discipline, following the global mining capex peak of 2012 and a decline in new exploration activity, have constrained new mine supply. The copper project pipeline today covers barely half of the requirements in the medium term, while critical minerals like lithium, nickel, and rare earth elements face even sharper bottlenecks. This imbalance is forcing a repricing of both resources and equities, as markets begin to internalize scarcity as a structural, not-cyclical condition. We believe this creates an environment of synchronized global necessity, which is different from preceding cycles that fed on synchronized global growth. To back it up, we are now seeing examples of growing policy backing – the US government picked direct equity exposure in Trilogy Metals for its critical minerals push, the US and Australian governments committed capital for Alcoa’s gallium project, the Indian government committed funds for critical minerals mission, China providing exploration capital, etc. We expect more emphasis to be placed on processing and refining capabilities, with an effort to diversify the supply chain. We expect that a cycle created out of necessity and backed by policy offers a longer rope to the miners.
Metals inexpensive relative to global money supply scale; demand has become less elastic to prices, with emphasis on supply-chain resilience
We have observed interesting trends, which suggest that metals demand has become less elastic to prices, with the focus turning to supply-chain resilience. One, the imposition of 50% tariffs on steel and aluminium has been absorbed by the market without much impact on prices and demand. Incrementally, Midwest premiums have increased to the extent that they fully cover the impact of tariffs. Two, Ford flagged a USD1bn impact on its profitability, owing to a fire at Novelis’s plant, underscoring the importance of supplychain resilience. This gives an inherent message that the market is not concerned with metal price increase as much as it is by security of supply. In addition, metals as hard assets are now seen as strategic holdings at relatively inexpensive levels, especially in the context of the global monetary debasement narrative.
Non-ferrous equities – key beneficiaries
We are seeing a sustained rally in the global Metals & Mining space in recent months, yet the market remains in the early innings of this structural upturn, in our view. There are limited ways to trade the critical minerals opportunity in India, with Midwest (newly listed), Nalco, Hindustan Copper, and GMDC trying to do something meaningful in rare earth elements or critical minerals. The conventional way to play a metals cycle is through non-ferrous equities, where our key picks are VEDL and HNDL, backed by a solid earnings momentum.
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