Bank of America has released its 2025 Metals and Mining Outlook, writing the following “ Macro uncertainty prevails, so cyclical mined commodities may decline in the first quarter of 2025. Yet, US and China no longer as interdependent. Adding that the China stimulus comes with caveats, so energy transition spend matters”. CNBC Africa is joined by Michael Widmer, Head Of Metals Research, BofA Global Research.
Bank of America has released its 2025 Metals and Mining Outlook, writing the following “ Macro uncertainty prevails, so cyclical mined commodities may decline in the first quarter of 2025. Yet, US and China no longer as interdependent. Adding that the China stimulus comes with caveats, so energy transition spend matters”. For more, we are joined by Michael Widmer, Head Of Metals Research, BofA Global Research. Michael, thank you so much for your time. Before we talk about where we are when it comes to the performance of metals and what we're seeing, and what that would mean for 2025, let's reflect back in terms of what your expectations were coming into 2024 and in what sense were you surprised either to the upside or the downside? Moving into 2024, we actually, on the basement specifically, pushed a constructive picture, thinking that the energy transition, kind of what you said before, would be quite supportive. I think where we got surprised a little bit to the upside was especially in the second quarter when on the copper side that whole AI hype started to kick in, hit a record high, on a view that you need to build a lot of data centers and a lot of electricity infrastructure, and that would ultimately drive up copper demand. Look, that was true. I think where we got surprised a little bit is then after that, how quickly the market realized that this is actually not an add-on and we gave back all of those. We basically gave back all of those gains. So, I think it's more on the thematic side. The underlying directions in terms of being constructive, the metals and the supply side, I think that was pretty much in line with what we thought. The one thing, at least with market participants, we have been talking about is the performance of different asset classes, at least since President-elect Donald Trump won the election. Let's talk about what we've seen in terms of the performance of metals since that US election. Yeah. I think markets took 2018, 2019, so Trump's first term, when we had a trade dispute with China as a pattern. I think between January 2018 and December 2019, global sentiment deteriorated and metal prices came off. I think once it became clear that Trump would win, convincingly, that Trump trade of lower base metals came through. Then on the gold side, was this feeling, look, Trump, through tariffs, higher inflation, higher growth, you had a knock-on impact on the dollar and rates, and gold also repriced quite quickly. I think that's still where we are, a bit stuck here, waiting really for the administration to take office and give clearer guidance on where they wanted to take economic policy and ultimately also how the market would react in terms of macro variables. As we wait for President-elect Donald Trump to take office on January 20th, what kind of assumptions are you playing out in terms of scenario analysis regarding expectations and which way things could go and what the impact could be? It's a couple. I think on the base metal side, we are still, after a weak first quarter, we're actually still relatively constructive. So when I look at the policy tools, as I said, higher tariffs, higher growth, and all that policy package means that you potentially would have a stronger dollar, you would have higher rates and higher inflation. All of those Trump doesn't really seem to be particularly fond of. So in a way, we're kind of optimistic while we know that something is coming, we might not get the extremes of the packages that we could get, for instance, in trade disputes and trade war. If you then look at how much the US and China have already disentangled over the last five, six years with decolonization going on and energy transitions coming in as well, we think that the base metals could actually start bottoming out once the dust settles and then potentially move higher. So we are concerned about what may come, but we're also optimistic that we might get a more pragmatic outcome than what we could have in the worst case scenario for the markets. Well, you know, experts and market participants like yourself are obviously taking into account the potential headwinds from the trade dispute. And of course, taking those potential headwinds quite seriously. What else are you focusing on in 2025? And to what extent are you also checking in on the supporting rather the measures to support growth and how important they will be in 2025? Depends a bit on whether you're talking base or precious metals. But I think on the base metal side, energy transition spend will be important. China has already pushed ahead a lot. And I think then more needs to become. It's black and white. The Chinese stop spending on energy transition. It's not going to be a great picture for the industrial metals. Chinese spend more than we are good. The whole fiscal stimulus, monetary stimulus in China on its own, I think doesn't really make that much of a difference for the metal markets because it's not really targeted sectors that that are relatively metals intensive on the precious metal side. Look, I said, I think I have to see how how rates and dollar move. And then the last thing I think I would focus on is kind of the underlying fiscal picture in the US, but also in other developed developed countries. It still looks a little bit unsustainable right here. I mean, talking about France. Right. And that's still potentially gives an incentive for market participants to increase exposure to gold as what I think is the ultimate safe haven, safe haven asset. So when those concerns come back, I think that that's potentially also an important trigger for more investor flows and gold mining. I want to go back to the topic around the China stimulus measures. I mean, when you look at what we've seen so far, is it reminiscent of other stimulus measures that we've seen in the past? And have they been measures that were perhaps outright bullish? Yeah, look, I mean, you could go back to 2008, I think, since 2008, we had three stimulus package, the only that was really bullish for the metals on a sustained basis was the one in 2008. And because it was actually infrastructure intensive, what you had 2015 and 2018 wasn't really, I think, short, we had a short boost. But a year later, metals prices were actually down. And that is because we actually moved more towards stimulating consumption, rather than infrastructure. And I look at it this time around, I think it's going to be hard to figure out the one sector that the Chinese government can actually stimulate from an infrastructure perspective. You have got so many over capacities anywhere. It's like even the housing market, you're talking about five years worth of housing inventories. I think that just makes it very, very hard. And that's why I put this focus on the energy transition. The government can probably decarbonize the grid as long as they want. It would be supportive for the metals and probably doesn't even do anything wrong with it, right? Decarbonizing the grid, driving the energy transition is actually a good thing. So I think the headline kind of narrative, like whether it's going to be a bazooka or not a bazooka, honestly, I just discount a lot of that for the metals side when it comes to the Chinese stimulus. How are you thinking about aluminum in an environment where we are seeing Europe's aluminum industry continuing to shrink? Yeah, aluminum is an interesting one, right? I mean, it was for the best part of the past 20 years, a metal where we had unfettered supply growth. It's effectively not a resource-constrained commodity. It's a capital-constrained commodity, which means that once a prospective producer found the money, could build a smelter, and that kept the aluminum market just in a persistent oversupply for the best part of the past decade. And that's changing. The Chinese government has imposed a $45 million capacity cap. We are now operating at that capacity cap. In Europe and the US, given their operating costs, it's just not really a big incentive to build new smelters either. So you have got global capacity production growth, falling by half. So last decade, we were almost 5%. Since 2020, we've been growing by almost 2.5%. And that really makes a difference in terms of market balance. With very few projects in the pipeline, we should see continued support from the supply side for aluminum prices as well. Michael, thank you so much for your time this afternoon. That was Michael Widmer, who is the Head of Metals Research at Bank of America Global Research.
Theme: Trends and Challenges in the Metals and Mining Industry Leading into 2025
Bank of America's 2025 Metals and Mining Outlook has been released, with a focus on the prevailing macro uncertainties that may lead to a decline in cyclical mined commodities in the first quarter of 2025. The report highlights the changing dynamics between the US and China, emphasizing that the two countries are no longer as interdependent as before. Moreover, it stresses the importance of energy transition spend amidst the caveats surrounding China's stimulus measures. CNBC Africa recently interviewed Michael Widmer, Head Of Metals Research at BofA Global Research, to delve deeper into the insights provided by the outlook. Reflecting on the performance of metals in 2024, Widmer shared that while they initially held a constructive view, they were surprised by the rapid market realization that certain factors were not just temporary add-ons. The second quarter witnessed a surge in copper prices due to the increasing demand for data centers and electricity infrastructure, driven by the energy transition narrative. However, these gains were short-lived as the market adjusted, underscoring the importance of understanding thematic trends within the metals industry. The discussion then shifted to the impact of the US election on metal prices. Widmer noted that during President Trump's first term, the trade disputes with China led to a general deterioration in global sentiment and a subsequent decline in metal prices. Following Trump's victory, the markets anticipated lower base metal prices and a rise in inflation and growth, impacting the dollar and rates. Gold also experienced a repricing as a result of these expectations, highlighting the interconnectedness of political events and commodity markets. Looking ahead to 2025, Widmer outlined the key factors influencing the metals market. He emphasized the significance of energy transition spend, particularly in China, where substantial investments have been made. The direction of the US-China relationship and its implications for base metals were also discussed, with a focus on potential market bottoming once the ongoing geopolitical uncertainties settle. Additionally, Widmer highlighted the importance of monitoring fiscal policies and investor sentiment, especially in developed countries, to gauge the demand for safe-haven assets like gold. Addressing the China stimulus measures, Widmer drew parallels to previous stimulus packages and their impact on the metals market. He noted that while infrastructure-intensive stimuli, like the one in 2008, had a sustained bullish effect on metals, consumption-focused measures had less lasting impacts. Considering China's current scenario, with excess capacities across various sectors, the emphasis on energy transition as a stimulus driver was underscored as a more sustainable and market-friendly approach. In the realm of aluminum, Widmer shed light on the evolving dynamics of the industry, particularly in Europe where the aluminum sector is shrinking. He explained that after years of oversupply due to easy access to capital for smelter construction, the market dynamics have shifted. With China imposing capacity caps and limited incentives for new smelter projects in Europe and the US, global production growth has halved, leading to a more balanced market. Few upcoming projects are expected to support aluminum prices in the foreseeable future. In conclusion, the insights shared by Michael Widmer offer a nuanced perspective on the metals and mining landscape as we approach 2025. With a focus on thematic trends, geopolitical developments, and market dynamics, the outlook provides valuable insights for investors and industry stakeholders navigating the evolving landscape of commodities.
"So we are concerned about what may come, but we're also optimistic that we might get a more pragmatic outcome than what we could have in the worst-case scenario for the markets."
['Bank of America', 'Metals and Mining', '2025 Outlook', 'Commodities', 'Geopolitics', 'Energy Transition', 'China', 'US', 'Aluminum', 'Gold', 'Market Trends']