Is India the new China? (Ian Roper Interview)

Righto money miners. The China commodity theme will continue in this episode. We've got an absolute RIP snorter coming in from Japan and the theme of MMS being the greatest mining contractor in Australia is something that will never end, especially considering they got gear ready to go to move dirt right now. Like there's like you think open pit, you think MMS goes together? You bloody need to know like a glove. Don't This could be the last last in our brief series.

Endeavour to China for a little while, Maddie, but we'll be back. Alright mate, we're as many episodes as people in the country. It's bloody, it's bloody great, but boys, I. Think we could we could brand this one with an Indian flag? Just about yes. Strong, strong pick. Yeah, right. So today, money more as we have Ian Roper from Asterisk Advisory, previously worked, but he's CLSI Macquarie mate. He covers bulks, base metals, new energy, materials and live from Tokyo, probably possibly

the greatest city in the world. Mate, welcome onto the show. Cheers. Yeah, yeah, certainly the good city, yeah. Just don't mind lifting up a bit of sashimi while you're there mate, just to keep a bit of a Japanese feel to it. Take out for you here. Boys, you want to give a bit of an intro of what today's episode will all be about? Yeah, let's let's RIP in.

So Maddie, as you know, we've been going on a bit of a, a China venture, a bit of a commodities broader sort of venture, given all the the stimulus chat that we've seen in in recent weeks. And this is another one, Ian's been recommended to us by an Aussie fund manager. So thought we'd get in touch and get the over overview from a commodity strategist and that is very much Ian's background.

So where I want to start the conversation, Ian, is the stimulus, it's the, it's the elephant in the room, the one we have to kind of talk about. And you told me when we were chatting before the call that you'd, you'd had a bit of a, a pick on China prior to the year starting. And then there was a bit of sentiment and perhaps sentiment changing in and around LME week last week or the week before.

So I'm keen to hear what you're kind of picking up, how the the mood is on the back of the stimulus that we've seen in China. Yeah. So, so China's had a really tough year this year. It started at the end of last year. She made it very clear that it's unhappy local governments have just been spending too much money, too heavily indebted.

So there was a big clamp down on local government debt spending etcetera, LGF, ES, especially the off balance sheet lending they were using to fund a lot of infrastructure. So there's one key data series I look at, which is the newly signed construction contracts quarterly data series that was running down 5 trillion RMB, about 10% year on year in Q4 last year. And that was a very clear indication that the infrastructure this year was was just going to be down sharply. Yeah.

So cement demands been running down double digits all year, steel demands down about 5%. You know, what I call the old economy in China has really been struggling, but that's not the whole picture for China. You know, backs in the 2000s, a super cycle, it's a rising tide lifted all boats, right? Whereas now China's really seeing a lot of divergent because you've got the old economy, housing, infrastructure, yes, very, very weak. They've just been in decline for the last few years.

That's where things like like steel demand have suffered especially, but also we've got the new economy direct, China's massive investment in EVs, in renewable energy. And that's where the base metal demand is. And that's why you're seeing this divergent where steel demand running down 5% this year, but aluminium consumption is still growing 5%. Copper demand is going to be up 3 or 4%. So you've got a real kind of split in China between old and new.

And that all comes back to to XI's version of of Chinese modernisation as he calls it. She's new version of Chinese modernisation, which is that she wants the Chinese to invest heavily on the technology side and upgrading manufacturing, going high end, leading the world in all the technologies, EVs, etcetera. And you see they're doing a good job on that, whereas the old economy, you know that that's just something that they're not focused on so.

Ian, given given your role, speaking with plenty of institutions out there, what what are the the traders in and around Asia making of the stimulus? So there's still a lot of scepticism about the stimulus. So, yeah, China is now very different to what it used to be, right? In the old days, Beijing would say stimulus and everyone would jump and off to the races. You know, 2000 and nine, 2016 markets moved very rapidly.

This time around, quite different now, I'd say the Chinese peoples have been very depressed since COVID basically. You've had a number of different angles there. Not least she's the corruption clamped down, right, making life more uncertain, especially for entrepreneurs and business people, finance people. So that's kind of hit a lot of investigative confidence within China, both on the manufacturing side, investing side. For the last 20 years, people

have been used to wage growth. You know, jobs were plentiful. You know, people were getting richer all the time. That's really kind of come to an end with the downturn we've had since 2020 and all the COVID restrictions. And so that's where you've got a lot of people that are feeling, you know, my house price is not going up anymore, wage incomes

growth not there anymore. And that's why consumers have been miserable and not spending and therefore manufacturers have been miserable and not investing in new manufacturing either. So that's the kind of weakness we've been suffering from really since since COVID. And Beijing's been trying to cheer people up for the last couple of years.

And that's where it's been, you know, so different to previously that the word stimulus has been too overused now that we've seen numerous little stimuli, I suppose, over the over the last couple of years. And they're always tweaking housing restrictions and trying to loosen things at the margin. And then it just falls flat. You know, it's not enough to get

things moving. So I've been very dismissive of the stimulus headlines that we've seen through the year until this latest one at the end of September. And this really is a shift change. To me, this is very clearly a strong change in direction where Beijing's just said, look, growth is just too weak now. Consumers are too miserable. They're not spending, manufacturers are not investing. And we're really struggling to

hit the targets here. So yes, the green economy is doing really well, but we still need the consumers to be spending. We still need the manufacturers to be investing and having a more optimistic outlook. So you've really seen seen a big shift. But at the same time, they're still constrained by she's kind of reluctance to go too heavy on the leverage side of things. So this is not like old fashioned stimulus about the gloves are off, you know, just money and spend on anything.

So they're they're she's still determined not to do a bridges to nowhere policy, right. They're not just going to build infrastructure for infrastructure's sake. It has to be show some kind of economic return still and the housing market, that's the big issue. So one fantastic step on the housing market since China privatised the housing market in 1999. You know, prior to that it was all communism.

It was all allocated housing. It's only been a private market since 1999. They've actually built more than one apartment for every urban family in 25 years, right? That's ridiculous. You know, some of us live in 100 year old houses in the rest of the world. China's literally built the entire urban housing stock in 25 years. So that's why the policy for the last few years has been, Oh dear, look at the demographics. We've built far too much already.

We'd better stop building it. We can't continue at this kind of pace. So it's about better utilising what they've got and not building so many new ones. So that's why you've seen such a drop off in in housing in a new new housing constructions are running at about 1/3 of the peak levels in the late twenty 10s. So that's again something that's not going to come back, right. So they want to stimulate the consumers. They want to get the manufacturers on the entrepreneurs investing and

people feeling good. But she's still reluctant to let the local governments spend more money recklessly to boost the housing market and get developers building more apartments. You know, those bits of the old economy are still things that they're holding back there. And that's where you're getting kind of this these mixed conceptions and kind of lack of belief in stimulus where a lot of people are still looking for the old fashioned stimulus

infrastructure and housing. It's just not happening. Whereas the kind of this new stimulus is all about trying to get confidence back. And personally, I think they'll get there. They'll they'll be able to raise the confidence. You will see consumers coming out now spending more money. Hopefully we'll see a pick up in investment levels domestically and then for metals that could could well trigger a restocking cycle. That would be the real upside for metals prices.

If you then get all of the manufacturers restocking, you then get the traders restocking. You get a lot of belief and excitement heading into Chinese New Year next year that, Oh yeah, 2025 is going to be much better than 2024 and off to the races we go. When when you say consumer, are you referring to Chinese consumers or international consumers? Oh, no, Chinese consumers, yeah. So obviously one of the. Yeah, sorry.

So if that's the case, like how much of China is made up of the the low income Chinese part of the population, that is obviously why everything is so cheap to buy here because of the cheap labour. How much of that is made up, how much of China is made up of that group? And if so, like as I assume they can't spend much more because they earn nothing so. Yeah, I mean, the, the, the big issue since COVID is that the savings rates are up so much,

right? Because, yeah, for the last 20 years, you have rising house prices. Why is it rising wage growth? People felt they were getting richer and happy to spend. And then since COVID, you've seen, all you've seen is the savings rates going up and up and up because people are just have a lack of belief in the future. They don't see that they're going to be better off in five years. So everyone's kind of hoarding cash now.

The big problems in China that you have a structurally the lack of a safety net, right, that most of the medical system is still private, so you've got to save money in case you get some nasty disease. Most of the education system, you need a lot of private money as well for, for all the extra, you know, tutoring and different schools and things. So there's a lot of reasons why the Chinese always been very conservative and tend to save very heavily for a rainy day.

So there's two aspects that Beijing can look at to try and get the consumer spending again. Number one is obviously the confidence factor of get them believing that, you know, the economy will be good, you will be able to make more money next year. So feel free to to go out and spend today. And the other thing is, is potentially reforms around pensions, health care, education, who Co reform, you know, the registration system, whether you're in the city or the countryside.

So if they can strengthen some of the social safety net, that's certainly something to watch out for is more structural reforms that could try and get the consumer spending more. Ian, you, you spoke about making the most of the the property that they've got and that kind of doesn't, doesn't sound too great for overall demand for commodities. How are you thinking about that? Yeah. So start of the year, I said that I'm very bearish on on the old economy, on infrastructure, on housing.

I think steel demand will be down 3% this year, but I still think that copper and aluminium demand will be +3 or so because the green economy is doing. And that's something which even with the stimulus coming through, I still maintain those that split in the economy will maintain. And we'll see a lot of differentiation between different kind of metals consumption in the coming years. So yes, I don't see a rebound in steel demand for example, next

year. I think, you know, infrastructure is probably not going to have a similar drop to this year, probably come starts to flatten out. Equally housing's probably not taking another leg down now, but it's unlikely to recover. So steel demand trajectory absolutely doesn't look very impressive, but the renewables build out, the EVs roll out. And then, yeah, in terms of housing stimulus that you are seeing is all about completions. It's about buying up unsold units for social housing or

renovating old units. So that still means, you know, rewiring, installing new appliances, etcetera, maybe putting solar panels on the roofs. So there's still a lot of metals demand. It's just it's not steel. It's going to be more aluminium, copper, that kind of thing. Yeah, it's very, very

interesting. The whole, you know, consumer stimulus in China, if you think of it from a like an Australian landscape, don't think we need any consumer stimulus for mining companies to know that Grounded needs to build the mining camp. Well, that's what you don't need. Like they just know that is the right thing to do.

Like as we described last week, like just from the new law that you have to like have a builder with Sicilian background to know that you're going to get the quality, the longevity, the expertise for any piece of infrastructure on your mind site. And that would be limited to Grounded only. You've seen pictures of these camps, Maddie. They are the worst. Jesus. Cross their bloody. Extra room like my great gym facilities.

I just don't think you can beat what can be built by the team at Grounded. I'd actually say they. Contacted the Coburn local council and to get permission to knock down my house and get a grounded camp in to replace it because they're just even better than my house. Yeah, it's it's, that is just the the quality of craftsmanship and the attention to detail, Travis, that Paul Natali and the grounded team put towards these mining camps is just unparalleled in the industry. So like.

Get yourself a Crown Plaza out in the Bush. Oh mate, if you could tower Hilton up it wouldn't even be as good as a grounded camp. So mate, and we give you direct access to Paul with his email in the show notes. Flick him a message and ask for a bloody best mining camp in the

history of mining and camps. One of the reasons that you're that the the consumer has such sort of negative sentiment towards, you know, investing domestically is is because a lot of the policy settings have actually created an environment where these, you know, these downstream, you know, businesses are unprofitable because they they have to run kind of under

capacity or utilisation. There's too many of them that exist because the local governments are all have all have their own steel mill, have their own yeah, lithium refinery in those sort of sensors and hence kind of don't have the efficiencies and aren't necessarily very profitable.

But how do you think about the risk that the policy setting will actually result in fewer number of remaining steel mills actually being actually operating and a focus on profitability in that in that downstream again and the implications of that could have for example in the iron ore market? Yeah, Well, that's certainly something that's that's some discussion at the moment around should there be another wave of kind of supply cyber falls,

right. That was very successful there, 2016, 1718. And so you saw a lot of kind of redundant capacity being closed and actually steel mills had had good margins there and your commodity prices were generally higher. So there's a lot of people in the industry who are calling for same again, you know, let's let's have another round of cuts.

But at the same time, the central government's conflicted of, of, you know, on the one hand, they're willing to take the pain for the longer term gain. You know, we're not short term kind of politicians just looking for a, for a good story for one or two years. We're trying to be structurally sound here. We don't want too much debt and too much, too much negativity overhanging the economy. But on the other hand, they're showing a real reluctance to take too much pain.

So you've got huge number of zombie companies in China, right? And the triple R cuts, the interest rate cuts we saw for the banks in this stimulus that read more like a bank bailout because the banks are clearly struggling with a lot of unrealised MPLS and just having

to endlessly roll over debts. And and you know, the government's reluctant to push a lot of companies to the end edge and actually deal with the redundancies and the resulting problems because there's kind of too much pain from that sense that was would result there. So they really start between a rock and a hard place at the moment.

But I do think there there's decent odds that perhaps you will see renewed talk of things like supply side reforms and push to perhaps close capacity in some of the Heavy Industries like steel. And certainly the talk of that could help help prices and kind of people heart back to the good old days of supply side reform and they were making big margins and things. So the industry itself is

certainly encouraging that talk. Have you got an explicit view on where you see iron ore over the next 135 years? Well, iron ore has been a real conundrum this year. I mean you've seen very strong supply growth right now. Imports in China are going to be up 60 or 70 million tonnes this year. India's annualising up from from 40 odd million last year to 60. Plus Brazil's had a good year. Australian exports are up decently as well.

You've still got some new supply coming in Onslow and such ramping up. So there's been plenty of iron ore supply. And yet steel demand in China has been running down about 5% this year. Now, obviously they've been exporting a bit more steel, so keeping the steel production not quite down that much. But still the iron ore port inventures have been rising throughout the year. There's no shortage of iron ore. And it's, it's, you know, amazing to me how the price

hasn't been weaker. I've been calling for the price to fall into kind of the 80s all year because you know, oil prices are quite low, freight rates are not that high and the grade discounts are very narrow. That's the most important thing for the iron ore cost curve. Mills are not making money. They're happy to buy low grade so that that essentially suppresses the top of the cost curve, which is dominated by all

the low grade suppliers. So from that perspective, you know, I've been surprised iron ore's not be weaker. And then of course on the back of stimulus, iron ore's the one that's had the biggest move. Now the problem we have with the iron ore market is the price is just so dominated by this retail trading in Dalian, right. You look at the Met coal price, that's entirely a physical market and a very liquid 1.

You look at the aluminium market and that's entirely a physical market and a very liquid 1. So those markets tend to be very depressed or or very kind of excited, but they definitely reflect physical changes, whereas the iron ore market is just just moves on hot air so much at the time. And so that's why our iron ore went from $89.00 just before stimulus was announced to 114 within days. And like I said, stimulus is not adding steel demand, it's not

adding iron ore consumption. So that's just a complete overreaction. Can you, can you peel into that a bit? This is a comment I've heard a couple of times as we ventured into the, you know, the, the China kind of commentary. And that's the extent to which there is like Chinese retail money that massively influences kind of the the short term gyrations of some of these like pretty, pretty hefty markets that grab headlines here in in the West. Yeah.

So I'm, I'm not too sure what the current numbers are on iron, but I remember a few interesting comments over the years. I mean, the average holding period on iron ore trades and Danny Anne was like 2 hours for for a certain period. You know it's a real day trading market. And there was more trading activity in the old days,

certainly. I don't know if it's still current, but there used to be more trading activity in the night session, you know, when the market would open in the evening than during the day, which again, shows it's kind of, you know, retails people just trading. And I don't know how many of them are trading drunk as well. So that probably accounts for some of the generations. Is this the futures? Market is. Is this the futures market you're you're referring to?

Yeah, the Dalian Dalian exchange, yeah. Wow, that's that's amazing. And and that's not seen in most other commodities. Is that right? It's extreme on, on, on all, yeah. It's just Dino is just dominated. You know, the Dalian volume is much, much greater than the SGX volume, which is kind of like the the Western trading market. But then even on the SGX volume, I think an awful lot of that's kind of Chinese arc trade as well following the Dalian moves.

Whereas, yeah, when you look at the base metals, obviously LME comics, they've still got massive volumes outside of the SHFE market. And so that's where you tend to see the base metals a less volatile because I'd say you've got more international trading money that's offsetting any kind of retail in China. Whereas iron ore just doesn't have an offset. You know, it's that Dalian

market just dominates. If if we change tech in India is a country that a lot of people have spoken about the, the sort of cool narrative and you, you seem to hold that view as well. Maybe I'll just give you a, a sort of broad angle to, to start with what you're thinking of India and then came to get into

METCO specifically. Yeah. So when I was living in China in the 2000s, you know, there were all these bullish Chindia reports doing the rounds of, hey, India's got a billion people that can follow China. And I was always highly sceptical, right? And I went to India a few times in the 2000s. It's nothing like China and nothing could ever get done there, right? It was kind of bureaucracy or

land access rights. So there are a lot of problems where where just things didn't progress very quickly, power availability, etcetera. Whereas post COVID and I'm speaking to a lot of my India contacts and people doing business there, but they were saying, well, things have really changed, you know, demands jumped up and looks really sustainable. So I went there again last year for the first time since 2009, completely transformed. It's amazing. I think Mode has done quite a

few important key changes there. Number one, he invested a lot in infrastructure early on. So India hasn't really suffered blackouts, brownouts on the power side since about 2019. Power supply is plentiful and they're taking the renewables from something like 200 gigawatts to 500 gigawatts by the end of the decade, massive investment in that. And they're still adding another 80 gigawatts of thermal power as well. So you've got huge investment in power. You've had big investment in

airports, like flying around. It feels just just like, you know, China or anywhere with modern airport facilities, everything works much better, roads as well, ports. So you've had a lot of infrastructure investment early

on as well. Modi did this cancellation of all the banknotes when if you remember that, and they kind of bought all the banknotes into the banking system and that's helped to eliminate a lot of the corruption because everyone has bank accounts, a lot less cash oriented, digital money and everything. A lot of the social handouts now or digital money will direct into people's bank, bank

accounts as well. And if you're paying everything digitally, there's less room for officials to be dipping their hands in as well. Less cash being handled equally, digitisation of government. So they've streamlined a lot of processes, a lot of the forms, documentation, everything now is on a system. It's online. You're not actually going to a physical person needing a stamp

or a signature or something. Again, that's removing a level of potential corruption, speeding up the processes with the paperwork and everything, you know. Yeah, bankruptcy reform, a bit of land access reform and stuff. And so India's got a number of key drivers now. So they keep hiking the infrastructure budget. I think they've raised the infrastructure budget 1/3 every year for the last three years. This year it's only up 11% with the with the budget being a bit more responsible.

But they've still got big plans on infrastructure. They're going to electrify the entire rail network. India is already starting to build a Japanese bullet train network. It's the only countryside country outside of Japan that's actually going to have bullet trains, and I think the Japanese government's lending quite a lot of the money for that at a state level. But yeah, the first one will be up in in 2026, so don't know. They have to culturally. No more sitting on the roof at

400 kilometres an hour. That'd be a bit of a change, but should be revolutionised. They're moving around India with bullet trains there, as I said, the renewable energy build out as well, you know, going up to 500 gigawatts by the end of the decade. One of Modi's pledges in the election was free power for all the rural households. So they've already started a programme this year of 10 million rural houses getting free solar installations. So people have got free access to power.

And then you could charge your electric bike or something as well for free. I'd say big plans on the infrastructure side and any other thing that mood is doing a great job of trying to attract all the FDI. So saying to people, why don't you move your factories out of China, come to India, so going to the the freedom loving democracies and say, hey, we're a freedom loving democracy. You should be investing here for for security of supply.

And then of course mode is at the BRICS conferences as well. Good friends with the BRICS guys get them to invest as well. So he's doing a good job of kind of being mates with everyone at the moment and trying to attract investment from everywhere. So that's where India's really interesting, because India doesn't really have much of a manufacturing base at the moment. I believe India only produces about 2% of global goods and consumes about 4%.

But Mode is really trying to attract all this investment with this Made in India scheme. And you're seeing a lot of big companies starting to put factories in India, big government subsidies encouraging that. So yeah, you've basically got the infrastructure side, the green energy side and the manufacturing side all being built out. And, and you put that together and, and it's giving very strong growth rates for commodities

demand. So if you think of India versus China today for steel, you know, India's 140 million tonnes of steel production versus China at a billion, it's about 15% of the size. It's growing at about 10% a year. Whereas the base metals are more interesting things like copper and aluminium. India's only about a tenth of the size of China, but it's growing at a 15% kega, which looks very sustainable.

So if you think of that for the world, you know, China's 50% of global copper demand growing at 3% a year, then that gives us what, 1 1/2 basis points of global growth. Whereas India is only 5% of the world, but growing at 15% a year, that's giving us 75 basis points of global growth. So India actually in absolute tonnage terms is about half the size of China already on an incremental annual basis. So it's not just that it's a nice tailwind for commodities.

I think you can really start to make a difference now. Yeah, speaking like about the rise of India, I guess who, who do you think is going to rise first out of India and race, botany and Australian earthworks and haulage? Race botany's already already risen, You know, India's still rising well. Because since IEH is like anytime expiration V2 like anytime expiration, I'd call China and then. Race India.

Race and IEH are probably going to be the India which probably will surpass China. Rising at a faster rate. Yeah, yeah. Wouldn't you think, JD? I think you've hit the nail on the head there mate. The the way I say the vertically integrated relationship between anytime exploration in Australian earthworks and haulage like Reese is the cake. Sheamus is the cherry on top.

That's like like between the earthworks haulage bloody that can work absolutely remote as like it's just bat shit crazy how remote these guys can work unsupervised with any time providing the field he's in G OS to oversee the earthworks, the rehabilitation, the damn building all with the expertise of races decades worth of bloody earthworks experience. You just I hope you got the phone in your hand now. His numbers in the show notes. Just like India, Maddie, it's

one you don't want to miss mate. Just give him a call. He is the Tendulkar of earthworks. I think the the people who've been like a bit, you know, trepidatious about certain commodity markets point to the growth of India as as sort of filling a gap that that, you know, China as China's demand might sort of, you know, ease in

certain areas. Is it as simple as, you know, they seamlessly fill a gap or, you know, do you think you kind of have pretty substantial volatility in in between where you know things could get a bit dicey? I think it's different for different commodities, right? So look, the biggest kind of beneficiary of the Chinese growth obviously was iron ore because China just geologically

doesn't have much hematite. Iron ore had to rely on high cost magnetite and that's where it just became so big on the iron ore import side of things. Whereas for for India, it's it's all about met coal, right? India has an abundance of iron ore, has an abundance of thermal coal will be poor quality, but

it has next to no met coal. So for commodities like met coal, India is already the biggest importer in the world, surpassed Japan a few years ago, 70 million tonnes a year out of a global market of about 300 million. But India is going to double its blast furnace steel capacity by

the end of the decade. So the met coal imports are going to be huge, potentially even even with the green steel revolution going on in Europe, North America, North East Asia, where companies are looking at closing blast furnaces and opening Eafs or kind of green steel basis. I still think the global met coal demand grows over 20% in the next 5 years with very little supply additions. So that's where met coal is a massive beneficiary of the India

story. Equally, copper, India doesn't have much copper geologically, so it's going to be a big importer of copper as well. I just had Adani just switched on the world's largest copper smelter earlier this year, half a million tonnes a year. That's partly why copper TCS are so low, because India's taking a lot of the copper concentrates away from China this year. Aluminium as well. At the moment, India's a big exporter of aluminium primary and then imports a lot of aluminium products.

But again, you know, the aluminium demand growth means they'll, they'll, they'll be consuming a lot more of that as well. So it's a different story for different commodities, I think for India. Just on, on copper there, Ian, we've seen a pretty volatile year in copper prices in in part because of the the changes in TCRCS and how they've just really been been crunched over 2024. Have you got insight on, on that

sort of trend? Is that something you expect to keep going for the for the foreseeable? Yeah. So there's definitely some interesting things going on in the copper market this year. So normally we look at the TCS as a good lead on refined prices. And yeah, if the TCS are tight, then that means surely the the refined market's going to tighten up later on because there must be a lack of concentrate to produce the refined copper this year. That's not quite come true, right.

It's a little bit more of an issue if we had a number of ex China smelters coming through. So, yeah, we've got India, this half million Tadani ones starting up. Ivanhoe started the smelter in their African project. Grasberg's been trying to start the smelter in Indonesia or their corset that's been having problems. And there's another smelter that started up in Chile this year as well. So we've only got global mine supply growth this year anyway of 2 1/2, maybe 3% globally.

But we've got a lot more smelter additions outside of China. And that's meant that there's just a lot less concentrate available for the Chinese market, which also has its own smelter additions this year. So that's where the concentrates have gone extremely tight. And you know, the TCS, spot TCS even went negative for a period. And you're like, well, how's that possible? You know, how can spot TC be

negative? So the other issue from the the smelters perspective, of course, is, is the, the byproducts, things like gold, right? The gold credits for some of them with gold prices being as high as they are. And one of the Chinese copper smelters was telling me every $100.00 an ounce on gold is about $10 on the TC for some of the concentrate supplies with decent gold content.

So that's another reason why the Chinese are just paying ridiculously low TCS for, for to secure the concentrate supply. So yeah, there's quite a few technical factors there. Whereas this year it's been more about ex China smell to growth having outpaced the mine supply growth, whereas yeah, next year your mine supply growth will continue. Yes, you've still got the ex China smelters ramping up. It's definitely going to keep TCS very tight.

But it's going to be interesting going into negotiating season because I think there will definitely have to be some changes to the the kind of the idea of an annual TC or just one price agreed for all smelters globally. I don't think we're going to see that. I think systems definitely going to break apart, perhaps similar to what we saw with iron ore in 2008, nine when that broke

apart. One of the things we saw over the past 20 years with the growth of China was China actually going, signing JV's, trying to buy assets all around the world. Do you do you expect India to do the same? That's a good question. I mean, it seems to have been quite reluctant so far for things like METCO where the steel mills know they, they desperately need METCO. But at the same time they, they don't seem willing to say overpay for assets, right?

They're still a little bit disciplined in, in what they're willing to pay. And they, they view themselves as we're Steelman's, we're not miners, we don't know how to run mines so much. So I think there's a reluctance to, to go upstream on that side. But then you have seen some transactions, right? You've had Jim Dao bought the Motis assets from from Valley last year. But yeah, it's certainly a big question mark for India where they're going to get the met coal from.

So one of the fascinating things last year, the Indian Steel Association sent a delegation to Mongolia and I was asking them, well, how are you going to get the coal out of Mongolia? You know, the Chinese will never let you rail it through China. And the Trans Siberian is jammed with Russian commodities into the seven East Coast ports. You're not going to get it out

there. And a couple of months ago, the Indian government actually announced investment in ports in Iran with the idea that they can rail cold 7 1/2 thousand kilometres northwest out of Mongolia, across Russia, down through Georgia and Armenia, and across Iran, and then ship it out of Iran into India. So you can imagine what that'll do for the cost curve 7 1/2 thousand kilometres of railing now that those rail lines already exist. I mean, Iran gets a lot of Russian commodities via that

rail route. So it would also open up kind of more, more commodities from Russia into India. So yeah, they're just adding the bulk pork capacity in Iran with an idea of of shipping it that way that.

Trade relationship between Russia and India is, yeah, particularly interesting with like, you know, all the reports that some of the the growth in India of of late has been kind of propped up about because they're, they're buying like discounted oil from Russia because no one else in the world is buying it from Russia. Yeah, yeah.

So that's where Modi's kind of treading a fine line at the moment of being everyone's friends, right, where he says one of the freedom loving democracies of the world and and you know, mates with all, all the democracies. But equally, yeah, happily part of the BRICS club as well. Very close with Russia obviously from their kind of the military supplies from a budget standpoint. And then, yeah, taking a lot of the Russian commodities.

And I think also the Russians are quite big investors in India as well. So, yeah, it's a very kind of close relationship there that that's see giving them cheaper inputs for the last couple of years, whether that continues. How do you think about the the sort of bear case view on India if it if it doesn't materialise in the next over the next decade? I think so.

The problems historically, like I said, was a lack of infrastructure and a lack of the ability to execute where people would have plans in India, but they just never get anywhere right, Can't get land access, can't get approval, you know, can't get access to to power or resources or things.

So those things do seem to have structurally changed where the government's willing to encourage investment, it's willing to to kind of help people get things done and making the resources and the infrastructure available. The other issue for India historically, I guess, has been the politics side of things where, you know, politics kind of becomes a factor that gets in the way and delays things or changes and moves the goal posts continually.

That's something where on the one hand, yeah, you've seen Modi won the election again in April and and seems quite solid at the moment. But equally, putting aside the, the politics at the central level, the states all seem to be wanting to participate in this growth.

Even if the state is run by an opposition party, you know, not, not one of the BJP alliances, they're still, they're not standing in the way of growth because it seems every single state doesn't want to get left behind that I can't be a state where I'm, I'm get a reputation that I can't deliver or you can't do business here because I'll get left behind.

People go to other states. So even when they've got political differences, they still seem economically these days to be, you know, willing to push the investment to, to, to get the ports and the roads and the rails and everything down to try and attract the FDI and the investment. So yeah, it seems on a very sound basis at the moment. Very, you know, we've seen decent growth rates since COVID and I really do believe they are sustainable.

If we, if we move away from India now you, you cover the, the battery with the energy, the new energy materials space as well. And nickel and lithium, obviously sort of key, key parts of this, both having a bit of a tough time at the moment. Why don't we start with lithium? Because I'm sure most people will be keen to hear about that

one. What, what do you make of the the build out in China of, you know, how they've just expanded so quickly and being able to produce so much and the sort of debate going forward between Bryan's Hard Rock assets and, you know, potentially clay projects going forward? Yeah. I mean, the astounding thing in lithium is how rapidly the Chinese have gone overseas and developed mining assets. But you know, in iron ore they were very slow to do that. But that's because iron ore

needs big, heavy infrastructure. Obviously, the actual volumes in lithium are a lot smaller. You can get away with just trucking projects. So it's amazing how how much mine supply, Chinese sponsored mine supply has emerged just in the last year out of Africa and such, like just kind of small simple trucking shovel projects that that, you know, low CapEx, maybe higher OpEx, but they get the tonnes quickly.

So China's been very aggressive in that investment, mainly on the private side more than the state side. And they seem to have, you know, ensured that they've got enough supply now. And that's where the lithium market's really in trouble. So yeah, the Chinese lithium demand still growing very well. EV sales in China are up 30% this year. We've had kind of cash for clunkers upgrade policy since April.

That's helped support the sales. So total auto sales have been struggling this year, but EV sales still up 30%. Now the problem from a lithium perspective is, is hybrids, right? Hybrid sales were up 80 odd percent last year, again this year soaring as well. So the actual lithium intensity per unit essentially has been declining. Even though the headline growth numbers are good, but lithium prices have really been suffering about worries on the export demand right through the

supply chain, EV exports. Obviously we've seen protectionism coming in US, Europe, elsewhere. So there's worries there on the EV exports, but also the battery exports, the, the, the process lithium exports, you know, through the supply chain. The Chinese market players are very concerned about X China growth and the way that the EV sales globally have just cooled so rapidly.

That's really the thing that that's got everyone on the back foot because, yeah, the Chinese have built so much capacity through the battery supply chains and the domestic demand. You know, I mean, the the domestic EV penetration is running ahead of the 2030 targets now.

You know, it's going extremely well, but it's the Western world demand where which has really disappointed this year and and that's the thing that that sent the price down while the supply has been coming through aggressively. What do you think about Rio Tinto's thesis for the Arcadium takeover? About the future of Braun and DLA being the big contributor to the front of the cost curve, no. I'm not really familiar enough on that to share any thoughts?

Sorry. Yeah. On the, on the, on the, the, you know, the copper, nickel, you know, aluminium kind of side side of the equation. You know, I'm, I'm kind of, I'm curious to see how you, how you, you know, what your views or non consensus views might be, you know, on those, on those other commodities. Yeah, so, so for the battery material side of things, I've long said copper's my favourite because look, we just don't know which battery technology is going to win, right.

Essentially you're in this kind of Betamax VHS battle. You know, a few years ago it was all about NCM, now it's about LFP, you know, next year the Chinese already bringing out solid state batteries. It's the technology has just been evolving so quickly at the actual battery level. But we know they need the cables, right, The wires and the cars and the charging infrastructure. We need mass grid investment globally for the charging

infrastructure. I think that's part of the problem why EV sales have fallen flat in so many countries globally, because people are buying them and finding the charging infrastructure is just not there. That's what Western governments need to be investing in if they want to encourage EV roll out. So to me copper is, is really the beneficiary or the one to focus on for that kind of EV related demand growth. Whereas yeah, nickel is really suffering a on the supply side of the way.

Indonesia's come in and just gone from nothing 10 years ago to this year. It's going to be 2.2 million in a three and a half million tonne global market and pushing on still another 30 odd MHP and Mac facilities coming in the next 18 months. So Indonesia's built all this supply on some of those heavy projection growth rates for NCM from a few years ago. And of course now they've fallen flat because LFP has taken all the market share.

So nickel looks really, really challenged where yes, we need a pain trade there. We need some of the high cost supplies to be sidelined and we're seeing that happen now. But I don't think that means we start a new cycle anytime soon. I think nickel is going to going to be struggling all the way through next year at least as well.

Whereas yeah, copper's the favourite structurally because that added demand from the EVs, from the charging infrastructure on top of what we're already seeing on the green energy revolution, wind farms, solar panels, etcetera and all that again, wiring them into grids and just the lack of copper mine supply growth. So that's, yeah, copper's absolutely the favourite. Nicole not so keen on at all.

You, you posed the question when, when a price is going to move sustainably high enough to incentivize new production or whatever the outcome might be. Have you, have you been brave enough to to put a timeline on when we see that leg up in copper prices? Yeah. So to me the copper prices have always been about scrap

generation. So I used to have a great chart from Google Trends where if you search Google Trends for articles about copper theft, then that used to match the copper price really well through the those peak prices in the early twenty 10s. So it's almost like, you know, the criminals are out there on their smartphones going, hey, enemy copper's up tonight Lance, let's go RIP off some more wiring. We're willing to risk electrocution at 12 K, but you're not willing to risk that

at 10K or something. It's that's really a marginal supply. I wouldn't say there's there's any mines in the world which are not operating at $10,000 copper but will operate at 12,000. You know, for your marginal supply, it's all about incentivizing the scrap generation. So that's what we're kind of running into in these these these coming years where we're going to have the demand outpacing the mine supply growth. We're going to need to generate

more scrap. And if we're going to need to generate more scrap now than we did last year, we're going to require a higher price to to pull in those marginal scrap units. So yeah, I've got kind of view that proper prices are just continually higher in coming years. You know, obviously we hit the $12,000 level back in May when we had all that fast money coming in on AI and data centres and all that over excitement,

and that quickly evaporated. But yeah, I think that kind of pricing will be quite achievable early next year when when the market's really in deficit and the Chinese demand keeps coming through and India's doing really well. And yeah, the big thing we're waiting for in commodity land, I think is a bit of a a Western world restocking It's. An interesting way to frame it, it's like, what, what, what price does copper need to be to incentivize people to steal more of it? Yeah.

That's essentially it, yeah. Trev, Trev mentioned aluminium before as well. So I think we'd be remiss not to talk a bit more about that given what's just happened in the, the past couple weeks with alumina prices just flying, breaking through 600 bucks. And you know, what we've also learned the past couple weeks is all this fragility through the system, this this sort of choke points where the whole system is very contingent on a, a few factors.

I think the, the prime example is Guinean supply for the bulk site. Do you think that fragility just lends itself to regular disruptions over the the coming years? Yeah, absolutely. Yeah. It's so we've got a much tighter global aluminium market now as opposed to Granana closure and stuff. And yeah, the like you, you touched it there on the Guinea side of things. So I'm wondering if this is going to become a seasonal factor similar to what we have in the met coal market.

Actually where you've got China's now reliant on imported bauxite is about 70% of their supply and of that 2/3 is from Guinea. So Guinea alone is about 1/3 of Chinese bauxite supply. Guinea has rainy season from May to July. So this the exports are down sharply. And of course that means Chinese import arrivals are much weaker in the third quarter, which is when China's in peak hydro season and their aluminium productions are running at record highs, pushing up to that

45,000,000 tonne production cap. So you've got a real inverse seasonality there between the imported bauxite supply and the domestic Chinese aluminium production.

So when the prices spiked back in June, and I was saying, well, you know, this is going to be quite sustainable till November because historically when alumina prices have spiked, you've seen Chinese exports come out very quickly because China's never really struggled for bauxite supply as an abundance of, of alumina refining capacity and was able to switch on very quickly when the price incentive was there.

That's very different now post COVID, both iron ore, zinc of oxide, you know, it's just impossible to mine anything in China these days unless you're already in existing mine. The anti corruption environmental rules, you know, have just decimated the elasticity of those supply curves in China. So there's no supply response in

China on mine supply. And equally the refineries, there's still plenty of spare refining capacity in China, but because the Ghanaian volume is not there, they weren't able to ramp up either. And with the domestic production of smelters being so high in three Q, they were what they were producing extra was going domestically. So yeah, that that's the problem that we have now as a seasonal trade. Could that be repeated next year and and increasingly more so going forward?

And that's a big question for me. The alumina could start to develop that seasonal trade. So the bizarre thing is how the aluminium markets just not the aluminium markets not followed through. You know, if you remember two years ago when LME aluminium was $4000 on the back of, you know, high energy prices every day, you know, the aluminium traders, LME traders are talking about our spot. European power prices are up. You know, aluminium's up, and that wasn't a real cost curve.

Who's producing aluminium with spot power? You know, most smelters have got contracted power. They're not using a spot unit of power to produce reduced aluminium. Whereas the alumina price is real. Even if people aren't buying a spot cargo over alumina, an awful lot of people have got contracts referencing the spot prices.

So a lot of smelters globally have got to be feeling of that uplift in the alumina price and that really should be pushing the, the aluminium cost curve about say $3000 LME basis. But the aluminium price has been very slow to move. And yeah, I, I just think people are not understanding what's changed. You know, the, the, the normal answer I get is luminous price spikes never last long. You know, it'll be back down again in a few weeks. So don't chase it. Whereas it's not been up now for

three months. Like I said, it's just had another fly up in the last few weeks as well and the risk is it stays higher now, you know, could well be into next year. So yeah, LME aluminium, Surprised it hasn't moved already. It's really lagging. Is, is that the market you'd sort of pick of the the bunch there that's most misunderstood? Is there is there another one? That one I mean. I think I'm I'm a prime example, but are there other ones you think are super misunderstood?

Yeah, that's one that really stands out and and certainly for this year just in terms of something that's changed dramatically. But my other big, big one is metcoal where that's structurally and very bullish on metcoal. And equally that's got a very interesting seasonal pattern because you know, iron ore. The nice thing about the iron ore market seasonally is that Chinese New Year always January or February matches the West Australian cyclone season and the Brazilian rainy season.

So you have both demand and supply both week in the first quarter of the calendar year and then you know both pick up after that. Whereas for Metco, you've got India, the biggest buyer is on monsoon season from May to September with reduced steel production and then they come out of the monsoon season and ramp steel production Q4 into a peak in Q1, which of course is exactly when Queensland starts to suffer from all the rains and cycling.

So you've got a real inverse seasonality in Metco where your biggest supplier out of East Coast Australia is offline at the same time as as the biggest producer India is, is, is pushing its production to peak levels. So you've seen for the last two years and again this year looks like being a repeat where metcoal prices have been 300 plus dollars at some point in Q1 on a cyclone induced spike.

But middle of the year they're down to $200 because the Indians are suffering from monsoon season and Aussie productions back up to normal levels. So you've got a real interesting seasonality there in metcoal, which I think could just get more and more extremes as as the Indian demand grows and grows. I wonder the commodity traders make so much money. Ian, I've got, I've got one, one last commodity.

I just want to touch on a bit out of left field, but nobody talks about it and you cover the the base base. I wonder if you give it any thought Zinc. Is there any reason to get excited about zinc? Does it stink or does it smell good? Oh, it, it smells good at the moment. Yeah, it's, it's, yeah, Zinc's had a very good year already. Price has been up towards $3000 for much of the year, which

historically is very high level. You've seen a lot of zinc mines supply disruptions globally, right? Peru, Australia, 2 biggest suppliers. And again, as I said, on the China domestic side, it's something where we've lost that elasticity of domestic zinc mine production as well. So the zinc concentrates markets been extremely tight. That's really hurt the Chinese refined zinc production as well. That's the refined zinc production is really struggling because of that lack of

concentrates. So yeah, in copper, they've found a bit more scrap. They've managed to maintain the copper production and they had very high concentrate inventories carrying over the last year that have helped. Whereas in zinc, that concentrate tightness is really feeding through to the refined zinc market in China. So refined zinc production's down and China's having to import more refined zinc from the global market. So that's, yeah, really tightening up the global market.

And steel production obviously has suffered a lot this year. Steel's about 2/3 of of zinc consumption goes into Gulf steel. Of that, about two thirds is into autos. So with this Chinese stimulus, you know, that should certainly help auto sales, appliance sales, you know, a lot of those end use zinc, galvanised steel

markets. So I think the zinc demand will be doing better in China in coming months, whereas the supply side still very challenged, doesn't look like that can recover until at least next year. So I think, yeah, seems already quite punchy today. You know, aluminium prices have really underperformed. They should catch up. I'd say zinc. The prices have done well, but they certainly look sustainable here. On a kind of three to six month view, it looks like a very tight market.

Where? Where were the disruptions in Australia for Zinc North QLD? Yeah, was it, Do your rivers have have issues or not? Yeah. Century zinc soft line as well. Century. Yeah, fantastic. Ian, I am all out of questions. I think I've peppered you with enough. Bellis, do you have any more for Ian?

Thank you so much, Ian, If, if there's, you know, one last thing, you kind of want to leave our, our listeners with something, you know, some something we should all reflect on or, or something non consensus that you've been pondering. Love to hear it. Yeah. So I'd say the key thing really and obviously India, we've got the structural growth story and and that's still very under appreciated, you know, but as as the demand keeps printing strong numbers, hopefully they'll get

more and more attention. But the other thing is on the China side that it's not just one China as it was for the last 20 plus years. It's about the split between new China and old China. And that gives very different stories for each of the different commodities. Excellent mate, amazing. Thank you so much for. Your time in. Thanks for that bud. Cool. Good stuff. Cheers guys. Oh boy, Jay, let's talk about buddy. Something that's in your wheelhouse and not mine. You love that shit.

I had a feeling you might say that. And yeah, I did love it. There was a good few details in there that I hadn't heard before. So very, very fascinating and awesome that we get a chat with these folks. Yeah. It's amazing how I can. Good intro but. Yeah, good intro. It's amazing how consensus like long copperies, everyone's long, everyone is super, super bullish copper. It's just it's an amazingly consensus for you for. The last four years. Yeah. But yeah, maybe it's when people

are fatigued that actually just. When are they going to give up Trev and just let it go up? Well, I also think it's so consensus in our very niche world of the market. You know, it's like it's, it has gone beyond that, you know, beyond. And it did when copper ran over 5 bucks. That was like hedge funds and these sorts of characters who aren't always playing in, you know, mining stocks or whatever. They might look at commodities more broadly, but it's a smallish part of the world.

MMS are going to be mining a large part of the world soon, JD, did you know that? They are and grounded are going to be supplying houses for a large part of Perth. Pretty bloody. Pretty much MMS do a bit grounded, Chuck the camp in for it. Crossbound your energy will Chuck your power station in for it. Bloody savical put the ground sport in for if it is an underground mine CRE. Got you insorted. They'll insure the mine, Greenland's equipment will sort the water infrastructure out for

the mine. K drill will find the mine. Before this happens. MMTS would have got the tenement sorted for K drill to go. Start drilling on it and Australian and look at haulage. Would have cleared the site, put the dams in K drill to do the holes and then once it's all gone you'll see how it's performing on the stock market Morris Park chart. Fantastic.

Mate very money miners. The information contained in this episode of Money of Mine is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Before making any investment decision, you should consult with your financial advisor and consider how appropriate the advice is to your objectives financial situation. And needs.