- 4 months ago
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00:00I want to start with copper and the signal that this is sending to you, $14,000 a ton.
00:05I think what we're seeing in copper is a market driven a bit more by speculators than fundamentals.
00:10So when I see these headlines saying Chinese demand is driving things, I think, well, that's suddenly, suddenly in the
00:16last couple of days, Chinese demand has just spiked for copper.
00:20No, I don't think that's the whole story.
00:22I think there's speculation.
00:24There's, you know, people are looking for asset classes.
00:26They're looking for something to own in an environment of uncertainty, right?
00:30So you've got to own AI, and maybe this is a derivative of AI.
00:33There's also cost factors.
00:35Because copper goes into data centers, right?
00:38It's not a big, big driver.
00:40Yeah.
00:40It's a small piece of it, but it gets a lot of attention, as you can imagine.
00:45And then, you know, the concerns about availability of sulfuric acid and about fuel in Peru, for example,
00:50the second largest producer or second or third largest producer globally of copper.
00:54So I'm not sure that this is totally fundamentally driven.
00:58I'd be pretty high conviction that we're not going to be much higher in this in a year from now,
01:02when the copper supply comes back on in several high-profile mines that are offline right now.
01:07What do you guys suppose will be the global economy in a year from now?
01:11Do you feel like you are comfortable to make a projection in terms of where things land?
01:17No, I was really trying to talk about the supply side.
01:19I was trying to avoid that altogether.
01:21But I think the piece, the puzzle that's easier for us to forecast is the fact that the
01:26Grassberg mine for Freeport is not fully operating, but it should be a year from now, right?
01:30And the Panamanian situation could be resolved and could be ramping back up.
01:35So that right there is a couple percentage right there of the global markets that could be back
01:40online.
01:40But as far as the demand side, I mean, I think you're going to have a mixed bag.
01:44I think that, you know, if we have a prolonged war in the Middle East, you're going to have
01:48concerns over, you know, recession or depressed demand in many of the countries that are big
01:55consumers of copper, right?
01:57So Europe and the Middle East.
01:59Sorry, not the Middle East, Europe and Asia.
02:01And I think that offsetting that, of course, is some demand strength.
02:05But I don't think it's quite as powerful as the market is signaling.
02:09I think there's more to the story.
02:11Okay, well, that's one story.
02:12There's also the aluminum story right now.
02:16And you had a note out earlier this month, you upgraded Alcoa to overweight.
02:22Your price target's $70.
02:23It's at $67.60 right now.
02:25So I'm getting there.
02:26Getting there.
02:27That's quick.
02:28You said limited global capacity additions, low global inventories, also disruptions with
02:33the Iran war.
02:34What's the Alcoa story and what's the aluminum story?
02:36I mean, Alcoa's up 27% year to date.
02:38It's just fascinating to me, some of these raw materials and how interesting or how interested
02:44investors have been in this space.
02:46But if you were to look at Alcoa versus the aluminum price, it's actually decoupled and
02:50underperformed the aluminum price.
02:52So that's, you know, you could look at how much it's moved year to date.
02:55And some investors are saying, you know, earnings have been disappointing.
02:58But the fact is, you're looking backwards to say that you're looking at first quarter results
03:02before the big squeeze in aluminum.
03:05And there's always a lag effect.
03:06But the amount of cash generation at these aluminum prices, it's really going to materialize
03:12in the second quarter and beyond.
03:13And I know we hit a really exciting number in copper, but the Midwest premium today also
03:18hit an all-time high.
03:19So, you know, aluminum actually is probably really undervalued at these prices.
03:24And we've seen forecasts that say that it should be at least $4,000 a ton from the recent,
03:28what, $3,600?
03:29In fact, the Midwest premium at an all-time high is still too low to attract the necessary
03:34amount of material to this country relative to seeing it go to, say, Europe.
03:38So I think aluminum is pretty sticky.
03:41I feel a lot of conviction that the market is yet to fully experience the shortfall in
03:45aluminum.
03:46There were several smelters that took direct hits of missiles, right?
03:49They're not coming back anytime soon.
03:51It's going to be six months at earliest with some that were not hit by missiles.
03:55Those hit by missiles have to get rebuilt.
03:57That will take 12 to 18 months.
03:59I feel like you joined us at Bloomberg Invest early, mid-March, let's say mid-March.
04:05Yeah.
04:05Was that mid-March?
04:06It was evolving, yeah.
04:07Yeah.
04:07Yeah.
04:08And the story was similar.
04:11But I think back then a lot of us thought this would be over by May, and it's not.
04:18Right.
04:19How does that change your view on the outlook for these raw materials and for these companies?
04:23It's hard to get information out of the Middle East and exactly what the status of some of
04:27these smelters are.
04:27But what we are hearing is that, again, they're hit harder than I think the market is demonstrating.
04:32If you look at the aluminum price and you look at the shortfall of aluminum before the
04:38Iran war began, we thought that there'd be a shortfall of about a million tons and change
04:43in a 74 million ton market.
04:44Now that number could be at least double and could persist a lot longer than we thought.
04:49So there's going to have to be substitution away from aluminum because there will not be
04:53enough.
04:54And there's already concerns in the market about aluminum availability and switching
04:58to other materials.
04:59So I think the aluminum squeeze is just in its early days.
05:03How hard is it to get information about the Middle East?
05:06You mentioned that.
05:07And I'm curious what you are hearing.
05:09Um, and do you guys have a team on the ground or what can you show?
05:14No, we do not.
05:14We rely on some of the specialists that have, you know, a dozen people that just look at
05:18aluminum.
05:18So we look at those.
05:19But for all like in terms of the commodity areas that you play, like, I'm just curious,
05:23like how much, how difficult it is to get information.
05:26Well, because the Middle East is so much of the aluminum supply, it's 9%.
05:31Um, you know, there, there's an Iranian smelter, for example, and no one knows exactly what
05:36the status of it is, but we believe it's probably not running full out.
05:40And, um, you know, there's pretty good information on EGA, um, Cutter, uh, the Cutaloom one is,
05:46I think, a joint venture with a publicly held company.
05:48So then we have okay information, but I think there's, it's hard to get in and make a proper
05:54assessment of how long it could take to restart because it's still in a war zone, right?
05:59Yeah.
05:59It does feel like, you know, people are underestimating how long we've talked about it a lot with LNG
06:04in terms of, um, Cutter in terms of its impact.
06:07So you just think we're not even done yet.
06:10And it's just interesting to have conversations where you're saying, like, if it goes on longer,
06:14like we are every week that goes by, you know, it's going on longer.
06:19But I think irrespective of if the war is over tomorrow, the aluminum situation is, is going
06:23to be tight for a while.
06:24Yeah.
06:24They are bringing in, what we heard is they're bringing in bags of, so there's a couple of
06:28reasons.
06:28There's the ones that were hit directly by the, the missiles, then the others that can't
06:33get Illumina and there's others that can't get LNG, right?
06:36So it's a trifecta or more of problems that are affecting the, the smelters in the region.
06:40So some of them are bringing bagged Illumina.
06:43I mean, this used to come in ships, it's powder, bring bagged Illumina across the desert
06:47in order to kind of keep hobbling along at these, uh, at these smelters.
06:51So it's not ideal, but they're just trying to keep the semblance of operations that they
06:55can.
06:56Um, so I don't know if there'll be a whole lot more hit, but I think that the, um, perception
07:00of ability to restart at any, you know, quick pace is, is completely wrong.
07:04I promised we'd go around the world and around the periodic table also.
07:08So let's talk a little bit about steel and, uh, what you're seeing as far as, uh, U S
07:13demand, U S supply, you argue it's too soon to call the top.
07:18Yeah.
07:18So we do a lot of channel checks in steel and our latest are suggesting that demand is
07:22decent, especially if you're in data centers, border fence and, uh, uh, utilities.
07:29Those are the big three we hear about, but also there's little pockets of demand on wind
07:32towers are really strong.
07:33Border fence.
07:34Border fence.
07:34Yeah.
07:35So made by a tubular, tubular rectangular steel.
07:39That's not totally on my radar.
07:41So being built in demand.
07:42That's what we hear.
07:43Yeah.
07:43So there's, so that's, that's a big sucking sound out of part of this Southern, uh, Southern
07:49steel mills that make those products and then, uh, wind farms and also, um, bridge work is
07:55really active.
07:56So there's little pockets, but broadly speaking, construction isn't great.
07:59Auto isn't great.
08:00Energy isn't exploding by any stretch.
08:03Wind farms in the U S yeah.
08:04Land, land based wind farms, because they can start up really quickly.
08:07So if you need, uh, if you're, you're waiting for a turbine, you're going to be waiting for
08:10years, um, in front of these generators.
08:13Right.
08:13But if you have wind, wind farms, I guess these, some of these wind power, um, yeah, waiting
08:18for gas turbine, for example, yeah, yeah, which, which there is a big waiting list.
08:22Correct.
08:22But I guess the wind capacity can start up within nine months.
08:26So that's seeing the proliferation of demand.
08:29So there's these little pockets of demand, but overall not great.
08:32The bigger dynamic here is that imports have fallen because of 50% tariffs.
08:36So the domestic mills are taking share from imports.
08:39Utilization hit a four year high, almost four year high last week at 81.4% the U S and
08:46that
08:46was really Trump's design from what I read, um, that, you know, he wanted to see U S utilization
08:52improve so that, you know, more steel is being made in the U S. Um, so overall, um, demands
08:58pretty okay.
08:59And, uh, mills are running pretty hard and they're raising prices every week on the flat
09:03rolled and plate side, even rebar.
09:06Um, I think we've got a little more ways to go before any risk.
09:09And even then it's tough to justify importing steel when you've got high freight costs, interest
09:14costs to store it, et cetera.
09:16Tim, you know, just got about a minute left here.
09:18How much of any of these supply chains can really dramatically change anytime in the near
09:23future?
09:23I just think about the war COVID, like it does feel like there's a global rethink about
09:29making sure that your national supply chains are secure.
09:33Any of this that we've talked about, be it copper, aluminum, steel.
09:37I mean, these are things that we don't see necessarily a lot in the U S anymore.
09:40How quickly can any of this change or will it change in your view?
09:44Well, it's not practical for every country to build their own aluminum smelter.
09:47So in the past, we, as a country thought it was okay to have a bunch, a good portion of
09:53aluminum capacity supplied by Canada.
09:55They're across the border.
09:56Right.
09:56I guess we don't think that anymore.
09:58That's not sufficient.
09:59Um, so, you know, the things could change in terms of our thinking about politics and
10:05borders.
10:05But other than that, yeah, it's not a practical to have every country have a silo of its own
10:10operations, but we're going more in that direction for sure.
10:13Yeah.
10:14I was thinking about that.
10:15Doesn't that, isn't that going to draw, raise prices on everything?
10:19I would ultimately create a lot more supply and prices would go down if borders were ever
10:23to reopen big, in a big way.
10:24Okay.
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